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Editorial 7 MIN READ

The CTA's nine-month marathon: bills, injunctions, and a deadline nobody loves

Three congressional vehicles, two federal courts, and a FinCEN outreach push keep the Corporate Transparency Act in motion through September

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. What the CTA actually asks for, and what Congress has proposed changing
  2. NSBA v. Yellen, and the Eleventh Circuit's first look
  3. Texas Top Cop Shop, and a second front
  4. FinCEN's posture: voluntary compliance, outreach, and an updated guide
  5. What the penalties actually are, after inflation adjustment
  6. Where this leaves a reporting company in September 2024
  7. Sources

he Corporate Transparency Act has spent 2024 in a fight on three fronts: Congress, the Eleventh Circuit, and a district court in East Texas. The statute is still in force for most filers, the deadline for existing entities is still January 1, 2025, and the penalties, now inflation adjusted, bite harder than the headline numbers suggest.

This is a legal-policy snapshot for September 2024. The mechanics have not changed. The pressure on them has.

What the CTA actually asks for, and what Congress has proposed changing

The beneficial ownership information rule, codified at 31 C.F.R. § 1010.380 under 31 U.S.C. § 5336, requires most domestic and foreign entities registered to do business in the United States to report their beneficial owners to FinCEN. Entities in existence before January 1, 2024 have until January 1, 2025 to file. Entities formed during 2024 have 90 days from formation. Entities formed on or after January 1, 2025 have 30 days. Reporting companies must update within 30 days of any change.

Every substantive congressional fight this year has been about those deadlines, those penalties, or the statute itself.

The most procedurally alive bill is H.R. 4035, the Protect Small Business from Excessive Paperwork Act of 2023, introduced by Representative Zach Nunn in June 2023. The original bill extended the new-entity reporting window from 30 days to 90 days for 2024 formations. FinCEN, in a final rule published November 30, 2023 (88 Fed. Reg. 83499), adopted the 90-day window by regulation, mooting the narrow version. The House passed an expanded H.R. 4035 by a vote of 420 to 1 in December 2023, broadening relief for existing entities and 2025 formations. The Senate has not acted. Senator Tim Scott's companion bill, S. 2623, sits in the Banking Committee.

The maximalist vehicle is Representative Warren Davidson's H.R. 8147, the Repealing Big Brother Overreach Act, which would strike the CTA entirely. It was introduced in April 2024 and has not moved.

None of the three is likely to become law before January 1, 2025. Reporting companies should plan accordingly. The political posture still matters, because it shapes what FinCEN and DOJ are willing to say in court.

NSBA v. Yellen, and the Eleventh Circuit's first look

On March 1, 2024, Judge Liles C. Burke of the Northern District of Alabama held the CTA unconstitutional as applied to the plaintiffs in National Small Business United v. Yellen, No. 5:22-cv-01448-LCB (N.D. Ala. Mar. 1, 2024). The court found the CTA exceeded Congress's enumerated powers, rejecting reliance on the Commerce Clause, the Taxing Clause, and the foreign-affairs power.

The operative effect was narrow. FinCEN announced it would not enforce the CTA against the named plaintiffs and the roughly 65,000 members of the National Small Business Association as of March 1, 2024. Every other reporting company remains subject to the statute.

The government appealed. The case is now before the Eleventh Circuit as No. 24-10736. Briefing was completed over the summer, with oral argument in late September 2024. A ruling is expected in the months following. Until then, the status quo for non-plaintiff filers is unchanged.

The government argues that incorporation and the sale of state-granted limited liability are activities in interstate commerce and that the CTA is an exercise of Congress's foreign-affairs and national-security powers, closing a known gap in Financial Action Task Force compliance. The plaintiffs reply that forming an LLC is a state-law act of paper-shuffling and that national-security framing cannot convert a domestic regulatory regime into a foreign-affairs measure. The Eleventh Circuit is the first federal appellate court to address the question.

Texas Top Cop Shop, and a second front

In May 2024, a group of plaintiffs led by the National Federation of Independent Business and Texas Top Cop Shop, Inc. filed suit in the Eastern District of Texas challenging the CTA on substantially the same grounds. The case is Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-478 (E.D. Tex.). The docket adds a First Amendment compelled-speech claim and a Fourth Amendment unreasonable-search claim to the enumerated-powers arguments, which NSBA did not reach.

The case is before Judge Amos L. Mazzant III. Cross-motions for summary judgment have been briefed. A ruling is pending. If the Eastern District of Texas rules for the plaintiffs, the Fifth Circuit will hear the appeal, and the country will have two active federal circuits taking up the constitutionality of the statute in parallel. A split is a plausible, though not inevitable, outcome.

A narrow injunction in Texas would most likely track the NSBA model: relief for named plaintiffs and association members, and no automatic nationwide stay. Counsel should not advise clients to rely on prospective relief that does not yet exist.

FinCEN's posture: voluntary compliance, outreach, and an updated guide

FinCEN has not asked Congress to move the January 1, 2025 deadline. Through the summer of 2024, it has ramped outreach. In June 2024, the bureau released version 1.1 of its Small Entity Compliance Guide, a 57-page plain-language walkthrough aimed at the roughly 32 million existing reporting companies. Version 1.1 reorganized the exemptions, clarified the "substantial control" test, and added worked examples for multi-layered ownership. It did not change the underlying rule.

The bureau has also pressed accounting firms, registered agents, and formation services to build filing into onboarding. Its public position is that a typical single-member LLC takes about 90 minutes for the first filing. Practitioners report similar numbers for clean structures and substantially higher for anything with trusts, partnerships, or foreign owners in the chain.

FinCEN and the Department of Justice have continued to defend the statute's constitutionality, with no signal that the government is preparing to settle or narrow the rule.

What the penalties actually are, after inflation adjustment

The statute sets civil penalties at up to $500 per day of continuing violation and criminal penalties at up to $10,000 and two years' imprisonment for willful violations. Those are the numbers every trade-press article quotes. They are also out of date.

The Federal Civil Penalties Inflation Adjustment Act requires annual adjustment. FinCEN's 2024 adjustment, published at 89 Fed. Reg. 4820 on January 25, 2024, sets the civil penalty at $591 per day of continuing violation. Annualized, that is about $216,000 for a single year of nonfiling, compounding daily until cured. The criminal cap remains $10,000 and two years of imprisonment, applied only to willful violations, and unauthorized disclosure of reported information carries a separate $500-per-day civil penalty and up to five years of imprisonment under 31 U.S.C. § 5336(h).

Willfulness is the operative word. FinCEN's public guidance is that the bureau is focused on willful noncompliance and will not pursue penalties against companies making good-faith efforts. That is a posture, not a statutory safe harbor, and it can change with an administration. The prudent read is that the bureau will show forbearance through 2025 for first-time filers who miss the deadline and then cure, and far less forbearance for repeat or concealment-flavored noncompliance.

Where this leaves a reporting company in September 2024

Three observations for anyone advising clients this quarter.

First, the January 1, 2025 deadline is real and should be treated as real. The litigation may change the rule for some filers next year, but it will not change it in time for existing entities to avoid the current obligation. Waiting on a court ruling to file is a poor trade against a $591-per-day meter.

Second, the 2024 formation window is the softer one. Entities formed in 2024 have 90 days from formation, thanks to FinCEN's November 2023 rule. Entities formed on or after January 1, 2025 revert to the statutory 30-day clock unless Congress acts. The practical effect is that a December 2024 formation has materially more room to breathe than a January 2025 formation, which is worth remembering when a client asks whether to push a filing across the year-end.

Third, the penalty numbers in most secondary sources are stale. The current civil figure is $591 per day. Anyone advising a client should quote the adjusted number and note that it compounds.

The CTA's first year has been an unusual spectacle: a statute passed on a bipartisan vote in 2021, now contested in Congress, defended by the executive, and litigated in two circuits. The right response for reporting companies is to file on time and watch the docket. The rest is noise until a court or Congress says otherwise.

Sources

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