With the Corporate Transparency Act, it's hard to know which way the pinball will bounce next.
The Corporate Transparency Act has turned into a game of pinball.
The latest in the growing string of mystifying bounces is that, despite a recent ruling by the U.S. Supreme Court to reinstate the paused law, it's still on hold because a second court has deemed the law unconstitutional. That second injunction on enforcement of the law still stands, meaning the law is back on hold. For now.
As originally written, the CTA required more than 32 million businesses, including co-op and some condo board directors, to submit beneficial ownership information to the Treasury Department by Jan. 1, 2025. (“Beneficial owners” are defined as people who ultimately own 25% or more of the company, or exercise significant control over it.) The law was intended to bring greater transparency to limited liability companies in an effort to combat money laundering, fraud and tax evasion.
The pinball began bouncing in early December, just weeks before the law was to go into effect, when a Texas court issued a nationwide injunction against enforcement of the law, finding that the government was unable to provide “any tenable theory that the CTA falls within Congress’s power” — and is therefore likely to be found unconstitutional. That case is known as Texas Top Cop Shop v. McHenry.
Two days before Christmas the pinball bounced again when the Fifth Circuit Court of Appeals reversed the decision by the Texas judge, meaning the law was back in effect. Three days later, the appeals court reversed itself, reinstating the injunction and effectively blocking enforcement of the law. And on Jan. 23 the U.S. Supreme Court issued a stay of that injunction, meaning the law was is back in effect.
Except that it wasn't. Nobody seemed to notice that a second Texas lawsuit, known as Samantha Smith and Robert Smith v. U.S. Treasury, had resulted in a second injunction against enforcement of the CTA. The Supreme Court did not address the Smith injunction in ruling against the Top Cop Shop injunction, and so the former remains in effect, blocking enforcement of the CTA.
In a statement, the Financial Crimes Enforcement Network of the U.S. Treasury Department (FinCEN) said: "On Jan. 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in (Texas Top Cop Shop). As a separate nationwide order issued by a different federal judge in (the Smith case) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports."
Many co-op and condo lawyers are advising their boards to do just that. In a client advisory, the law firm Smith Buss & Jacobs states: "Compliance with the reporting rules in the CTA remains voluntary. We still recommend that, at a minimum, companies send their reporting information to any third-party filing agents whom they have retained. That way, if the Smith injunction is similarly overturned, you will be ready to make the necessary filing."