US Appeals Federal Court Ruling on Corporate Transparency Act; Companies Advised to “Voluntarily” Report Ownership Information

US officials are appealing a federal court decision that blocked the enforcement of the Corporate Transparency Act (CTA), while encouraging companies to “voluntarily” report beneficial ownership (BO) information.

Earlier this month, a Texas court issued a nationwide preliminary injunction, ruling that the CTA is “likely unconstitutional as outside of Congress’s power.” The decision also questioned the validity of a BO reporting rule enforced by FinCEN, the anti-money laundering (AML) unit of the Department of the Treasury.

“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force,” FinCEN announced in a statement. The agency added, however, that “reporting companies may continue to voluntarily submit beneficial ownership information reports.”

The Department of Justice, representing the Department of the Treasury, has filed a notice of appeal against the ruling. It is expected to seek a stay of the injunction while the appeal is ongoing.

Legal experts have advised companies to remain prepared for potential changes. Multiple firms have recommended that entities previously subject to BO reporting continue collecting relevant data in case a court ruling reinstates the filing requirements.

The Department of the Treasury has defended the CTA, citing separate district court decisions in Virginia and Oregon that upheld the law’s constitutionality.

Dan Stipano, a former senior official at the Office of the Comptroller of the Currency, described the Texas court’s ruling as “chaos.” He remarked, “Regardless of whether the decision is stayed or overturned, an extension of the BOI reporting deadline seems inevitable,” in a social media post.

Stipano co-authored a Davis Polk client update advising companies to continue assessing their BOI reporting obligations. However, it recommended holding off on actual submissions until FinCEN issues further guidance.

The legal battle over the CTA’s enforcement adds uncertainty to compliance requirements, leaving companies in a state of limbo as they await the outcome of the appeal.

By fLEXI tEAM