Appellate Court Reverses Itself, Blocks Corporate Transparency Act

The on-again, off-again Corporate Transparency Act is back off again.

The latest whipsaw came yesterday, Dec. 26, when the Fifth Circuit Court of Appeals reinstated the injunction against enforcement of the law's Reporting Rule, pending a hearing on the merits of the case. Just three days after it had lifted the injunction, the Fifth Circuit reinstated the stay “in order to maintain the Constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” The appeal remains expedited and the Appeals Court will issue a briefing schedule shortly. 

Two days before Christmas, the appeals court had reversed an earlier decision by a Texas judge that would have blocked the law's requirement that corporations, including co-op and condo boards, must file information about their beneficial owners by Jan. 1, 2025. The Texas judge had questioned the law's constitutionality, calling it "quasi-Orwellian."

Co-op and condo boards are absolved — for now — from having to file the required ownership information. “Beneficial owners” are defined as people who ultimately own 25% or more of the company, or exercise significant control over it.

"The government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality," the appellate court stated in a brief issued before yesterday's reversal.

Co-op and condo boards are understandably confused about the latest reversal of the earlier legal reversal. A bit of history might clear up some of the confusion. The Corporate Transparency Act was passed in 2021 in an effort to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses. In New York City, the primary target was the purchase of high-dollar condos and other real estate by limited liability companies, known as shell companies, whose owners were concealed by a veil of anonymity. In lifting that veil by requiring specific information about the identities of the LLC owners, the law is designed to short-circuit illegal activity.