LEGAL UPDATE
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction that halts enforcement of the Corporate Transparency Act (“CTA”) and its associated regulations by the Financial Crimes Enforcement Network (FinCEN), part of the Treasury Department.
In Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-cv-478-ALM (E.D. Tex.; Dec. 3, 2024), the court determined that the plaintiffs satisfied the criteria for a preliminary injunction, including demonstrating that “the CTA is likely unconstitutional as outside Congress’ power.” Based on this determination, the court granted the plaintiffs’ motion for a preliminary injunction, stating:
The CTA, 31 U.S.C. § 5336, is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380, is also hereby enjoined, and the compliance deadline is stayed under § 705 of the Administrative Procedure Act (APA). Neither may be enforced and reporting companies need not comply with the CTA’s January 1, 2025, beneficial ownership information (“BOI”) reporting deadline pending further order of the Court.
Importantly, the injunction applies nationwide and is not limited to the plaintiffs in this case. This broad scope contrasts with a March 1, 2024, decision by the Federal District Court for the Northern District of Alabama, which declared the CTA unconstitutional but limited its permanent injunction to the named plaintiffs in that case.
While the Texas court’s order specifically mentions the year-end BOI reporting deadline for companies formed prior to 2024, the scope of the injunction appears to extend to all CTA reporting requirements. This likely includes the 90-day filing deadline for companies formed in 2024, which is also stayed pending further court action.
It is critical to note that this ruling represents a preliminary injunction, meaning it is subject to further proceedings and potential appeals by the Justice Department. Companies should monitor developments closely, as future rulings could alter the current legal landscape.
PRACTICAL CONSIDERATIONS FOR BUSINESSES
For now, companies are not required to file reports under the CTA. However, it remains prudent to assess whether your business falls under the scope of the CTA and, if so, to continue preparing for compliance. Gathering the necessary beneficial ownership information now will ensure readiness if the injunction is lifted or modified.
We will provide updates as this case develops. In the interim, businesses should consult with legal counsel to understand how this ruling may impact their specific compliance obligations.