December 10, 2024 – As we have previously reported, a deadline to file federal paperwork for many small firearms companies under the Corporate Transparency Act (CTA) was set for the end of this month. Companies with twenty or fewer employees and annual gross sales or receipts of less than $5 million faced a requirement to act before January 1, 2025. We invite you to review our prior Alert of November 1, 2024, for additional information regarding the CTA, its requirements, and potential penalties for violations.
However, on December 3, 2024, the U.S. District Court for the Eastern District of Texas entered a preliminary injunction in the matter of Texas Top Cop Shop, Inc., et al v. Garland et al, suspending enforcement of the CTA and its implementing regulations based upon its conclusion that the CTA is likely unconstitutional. The injunction has been appealed to the U.S. Court of Appeals for the Fifth Circuit by the U.S. Government, but the injunction still remains in place.
In the wake of this ruling, the U.S. Financial Crimes Enforcement Network (“FinCEN”) confirmed that companies that would otherwise be required to report their beneficial ownership information to FinCEN under the CTA and its implementing regulations (“reporting companies”) are not required to file beneficial ownership reports while the current, nationwide injunction of the CTA remains in effect. While FinCEN will continue to accept beneficial ownership reports from reporting companies on a voluntary basis, FinCEN stated that reporting companies will have no liability for failing to file required beneficial ownership reports while the injunction remains in effect.
While the order enjoined enforcement of the CTA and its implementing regulations in their entirety and stayed the compliance deadline, the order only addressed the January 1, 2025, compliance deadline, which applied to reporting companies formed or registered prior to January 1, 2024. This created confusion for reporting companies formed after January 1, 2024, which already must file beneficial ownership reports. Since the order did not expressly address these compliance deadlines, it was unclear whether reporting companies formed or registered since January 1, 2024, would be at risk of a penalty for failing to comply during the duration of the injunction. However, FinCEN appears to interpret the court’s order as “stay[ing] all deadlines to comply with the CTA’s reporting requirements,” indicating it is broadly applicable to all reporting companies.
The Texas federal court issued a preliminary injunction, meaning it is temporary pending final disposition. The federal government’s appeal does not automatically pause or place that order on hold, but the government could seek a stay of the injunction pending appeal. Those companies that opt to not voluntarily file beneficial ownership reports should closely monitor the status of the Texas case and any further guidance from FinCEN to ensure that any newly established deadlines are not missed.
Renzulli Law Firm will continue to monitor developments in the legal challenges to the CTA and the effects on any associated deadlines. If you have any questions about the reporting requirement or upcoming deadline, please contact John F. Renzulli or Christopher Renzulli.