Is a Court Case Redefining Income
The enforcement status of the Corporate Transparency Act (CTA) continues to shift following recent Fifth Circuit decisions. After initially granting the government's emergency motion to stay a nationwide injunction on December 23, the Fifth Circuit's merits panel reversed course on December 26, reinstating the injunction "to preserve the constitutional status quo" pending oral arguments scheduled for March 25, 2025.
The case, Texas Top Cop Shop Inc. v. Garland, centers on constitutional challenges to the CTA's beneficial ownership reporting requirements, which would affect approximately 32.6 million entities. The original injunction, issued December 3 by the U.S. District Court for the Eastern District of Texas, found that the reporting regime likely exceeds Congress's constitutional authority.
In response to these developments, FinCEN issued a December 27 alert stating that while reporting companies are not currently required to file beneficial ownership information or subject to liability for non-filing while the injunction remains in force, they may continue to submit reports voluntarily. The initial January 1, 2025 reporting deadline had been postponed to January 13, 2025, but is now effectively suspended.
Tax practitioners should note that despite the current uncertainty, experts recommend preparing clients for eventual compliance. Sarah Hibbard of Snell & Wilmer LLP suggests that entities should be ready to file beneficial ownership information reports, as a preemptive deadline extension beyond January 13 appears unlikely based on FinCEN's past actions.
Bill Kambas of Withers LLP emphasizes that while entities should be prepared, they need not file until there is more clarity. He notes that many clients have already invested considerable time in preparation and will likely complete their preparatory work to enable efficient decision-making once a deadline is established.
The underlying legal dispute focuses on whether the CTA falls within Congress's commerce clause power. The Fifth Circuit's December 23 stay order (now vacated) had suggested that the government was likely to prevail, noting that the CTA "at least operates constitutionally when it requires that corporations engaged in business operations affecting interstate commerce disclose their beneficial owner and applicant information."
Looking ahead, briefings are due in February 2025, with oral arguments scheduled for March. Hibbard notes additional uncertainty regarding whether the Trump administration would continue the appeal if relevant, and mentions potential opportunities for congressional action on the CTA.
Practitioners should continue monitoring this situation closely as it develops, maintaining preparation efforts while awaiting final resolution of the constitutional challenges.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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