The U.S. Department of Justice has appealed the preliminary injunction that stops enforcement of the Corporate Transparency Act (CTA). 

The injunction, issued by the U.S. District Court for the Eastern District of Texas earlier this month, halts the Jan. 1 deadline required by the CTA. Had the deadline remained, businesses that missed it would’ve faced up to two years imprisonment, fines up to $10,000, and civil penalties up to $591 per day. 

Crimes Enforcement Network (FinCEN) has issued an alert that companies are no longer required to meet the deadline per the ongoing litigation. 

“While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect,” the alert says. “Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.”

The alert says submission is voluntary only at this time. 

The case, Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., questions the constitutionality of the CTA, which is meant to expose criminal activity by removing corporate anonymity. 

“At its most rudimentary level, the CTA regulates companies that are registered to do business under a state’s laws and require those companies to report their ownership, including detailed, personal information about their owners, to the federal government on pain of severe penalties,” wrote United States District Judge Amos L. Mazzant in the injunction order. “Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several states. Second, the CTA ends a feature of corporate formation as designed by various states — anonymity. For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government.” 

FinCEN says in the alert that the Department of Justice filed a Notice of Appeal on Dec. 5, on behalf of the Department of the Treasury. 

“The government continues to believe — consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon — that the CTA is constitutional,” the alert says. 

The Department of Justice’s appeal was made to the U.S. Court of Appeals for the Fifth Circuit. 

JDSupra recommends businesses be prepared for a possible limited reporting timeframe in the future. 

“Practically speaking, readers of this Alert who have not already considered if the CTA is applicable to their business entities should continue to ascertain whether their company, corporation, or other entity is a “reporting entity” as defined in the CTA,” JDSupra says. “Reporting entities should likewise continue to determine their beneficial owners for reporting purposes. At this time, there is no obligation to report; however, entities may choose to obtain this information in preparedness for a later date if reporting is once again required, especially if there is a limited timeframe within which to comply.

“Reporting entities may also choose to report notwithstanding the injunction. The advantage of such reporting is that no matter what the Fifth Circuit decides – or when any final decision is rendered regarding CTA’s constitutionality – that entity will already be in compliance with no further action needed.”

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