On December 3, 2024, in Texas Top Cop Shop, Inc., et al. v. Garland, et al., the United States District Court for the Eastern District of Texas granted a nationwide preliminary injunction that stayed the enforcement of the Corporate Transparency Act (CTA) and the CTA’s reporting rules. While the Court did not go as far as to declare the CTA unconstitutional, it stated that the CTA is likely unconstitutional as outside of Congress’s power. Specifically, the opinion states that the plaintiffs would likely be able to prove that the CTA is not proper under the Commerce Clause or the Necessary and Proper Clause of the Constitution. The preliminary injunction issued by the Court applies nationwide and provides that reporting companies do not need to comply with the CTA’s Beneficial Ownership Interest (BOI) reporting deadlines pending further order of the Court.
On December 5, 2024, the government filed a Notice of Appeal to the Fifth Circuit Court of Appeals of the District Court’s opinion and order. As the January 1, 2025, filing deadline for a majority of reporting companies is quickly approaching, the government may request that the appeal be heard on an expedited timeline.
Given the effect of this injunction, it is likely that U.S. Financial Crimes Enforcement Network (FinCEN), which is the bureau of the United States Treasury that is responsible for administration of the CTA, will issue a statement clarifying their position on the Court’s ruling. In the past, FinCEN has allowed for extension of filing deadlines in certain cases. It is possible, but not a certainty, that FinCEN will provide an extension for the filing deadlines until there is a ruling regarding the constitutionality of the CTA.
What To Do Next:
Reporting companies that have yet to file a BOI Report, and are not exempt from the CTA’s reporting requirements, should closely follow the progression of the case as the appeals process develops. As of the date of this article, FinCEN is still accepting new BOI Reports and updates to previously filed BOI Reports on its website. We suggest that reporting companies either (i) file their BOI Reports by the deadline that would have applied prior to the Texas Top Cop Shop ruling, as it is possible that the injunction may be lifted, or (ii) prepare and gather all necessary information and documentation required to file their BOI Reports so that they are prepared to file if the injunction is lifted.
