A federal judge in Texas has issued a preliminary injunction that blocks enforcement of the Corporate Transparency Act (CTA) just a few weeks before a year-end deadline that would require millions of businesses and corporate entities to file disclosure reports.
The Dec. 3, 2024 ruling in Texas Top Cop Shop, Inc. v. Garland prohibits the federal government from enforcing the CTA’s mandate that domestic and foreign “reporting companies” existing in the United States as of Jan. 1, 2024 submit certain information about the companies themselves and their “beneficial owners” to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by Jan. 1, 2025
The court held that the CTA is likely unconstitutional and issued and preliminary injunction barring its enforcement. Importantly — and unlike a prior federal court decision in Alabama — the Texas judge enjoined the CTA’s enforcement on a nationwide basis, holding that neither the CTA nor its related rules and regulations may be enforced anywhere in the United States.
In a prior alert, we outlined how to determine whether the entities you own, manage, or control are subject to — or exempt from — the CTA’s beneficial ownership reporting requirements, as well as the deadlines and the information that must be reported.
Appeal Expected
Since this is only a preliminary injunction and not a final decision on the merits of the constitutionality of the CTA, we expect the government to promptly appeal this decision and to potentially seek an immediate stay to eliminate or narrow the scope of the injunction.
Accordingly, it is possible that this holding will be overturned, whether temporarily or permanently, and that a final decision may not come until after the Jan. 1, 2025 reporting deadline.
What to Do Now
Due to the quickly approaching year-end deadline that otherwise would have been applicable to many of our clients with companies formed or registered in the United States prior to Jan. 1, 2024, we believe that these companies should either:
- Comply with the filing requirements to avoid missing the deadline in the event this holding is overturned prior to January 1, 2025
OR
- Hold off on filing, but finalize the analysis to determine whether they are exempt from filing under their CTA and, for those that are not exempt, continue to identify and gather required information relating to their beneficial owners to prepare for eventual compliance.
Similar advice applies for our clients with companies formed during 2024 or 2025. In the absence of the Texas Top Cop Shop decision and unless they are otherwise exempt from the CTA’s reporting requirements, companies formed or registered in the United States during 2024 are required to file within 90 days of formation or registration, and companies formed or registered in the U.S. during 2025 are required to file within 30 days of formation or registration.
Pending further judicial or legislative action, these companies should also consider complying with the applicable filing deadlines in case this decision is overturned. Alternatively, they can elect to hold off on filing, but should consider preparing for eventual compliance.
Companies that have already filed are in good standing and do not need to take any action at this time
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