On December 3, 2024, the U.S. District Court for the Eastern District of Texas entered a preliminary injunction suspending enforcement of the Corporate Transparency Act (CTA) and its implementation of regulations nationwide.[1] Shortly following the ruling, the Department of Justice filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit.[2]
The CTA, effective on January 1, 2024, requires specific business entities (reporting companies) to file beneficial ownership information reports with the U.S. Financial Crimes Enforcement Network (FinCEN). Under the CTA, reporting companies existing prior to January 1, 2024, are required to submit initial beneficial ownership information reports to FinCEN by January 1, 2025, and those formed or registered after January 1, 2024, must file within 90 days of formation or registration (and 30 days after formation in 2025 and beyond). For more background information on the CTA, please read our series: The Corporate Transparency Act (Parts 1-4).
However, the enforcement of the CTA has been temporarily suspended as a result of the Eastern District of Texas ruling that ordered a nationwide preliminary injunction. In the ruling, the U.S. District Court for the Eastern District of Texas issued the preliminary injunction enjoining FinCEN from enforcing both the CTA and the corresponding final rule which implements the CTA (the “Reporting Rule”). Unlike previous challenges to the CTA where the scope of the ruling was limited,[3] Judge Mazzant issued a nationwide preliminary injunction of the CTA and the Reporting Rule.[4] As a result, “reporting companies need not comply with the CTA’s January 1, 2025, [beneficial ownership information] reporting deadline pending further order of the Court.”[5]
As anticipated, the U.S. Department of Justice issued a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit on December 5.[6] In addition, FinCEN posted a statement to its website on December 7 confirming that it will comply with the federal court order as long as it remains in effect.[7] FinCEN’s statement notes that while reporting companies are not required to file their beneficial ownership information reports with FinCEN while the preliminary injunction is in effect, reporting companies may voluntarily do so.
As it stands, the CTA cannot be enforced against entities otherwise subject to reporting requirements. But, if the Fifth Circuit or Supreme Court stays the federal district court’s order pending appeal, reporting obligations may change on short notice. Therefore, it is important that clients with filing obligations monitor developments as the appeals process unfolds.
[1] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkt. 30 (E.D. Tex. Dec. 3, 2024).
[2] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkts. 32, 34.
[3] See Nat’l Small Business United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024)
[4] Texas Top Cop Shop at 77-78.
[5] ID. at 79.
[6] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkts. 32, 34.
[7] https://fincen.gov/boi
