On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily prohibiting enforcement of the Corporate Transparency Act (the “CTA”) and staying its Beneficial Ownership Information (“BOI”) reporting requirements. Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-00478.
Although the Court has not made an affirmative finding that the CTA and its reporting requirements are contrary to law, the Court determined that the CTA and its reporting rules are likely unconstitutional as outside of Congress’s power.
Under the CTA, reporting companies (entities formed or registered to do business in the United States and not subject to an exemption) were required to file a BOI report with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). For reporting companies created prior to January 1, 2024, the reporting deadline was January 1, 2025.
As a result of the Court’s decision, FinCEN is temporarily prohibited from enforcing the CTA, including any of the CTA’s penalties for noncompliance, until a final determination is made regarding the constitutionality of the law. Accordingly, reporting companies are not required to comply with the CTA’s January 1, 2025, BOI reporting deadline until further order of the Court.
FinCEN has issued a statement on its website addressing the impact of the ongoing litigation to clarify that “reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
On December 5, 2024, the Department of Justice, on behalf of the Department of Treasury, filed a Notice of Appeal to the Fifth Circuit Court of Appeals. If the preliminary injunction order is successfully appealed, reporting companies should be prepared to resume compliance with the CTA and its BOI reporting requirements.
Felhaber will continue to closely monitor any developments regarding this matter.