Nationwide Injunction Creates Uncertainty Regarding Corporate Transparency Act

Current Developments

On December 3, 2024, the U.S. District Court for the Eastern District of Texas, in Texas Top Cop Shop, Inc. v. Garland et al. E.D Texas, No. 4:24-cv-00478, issued a nationwide preliminary injunction, temporarily halting the government’s enforcement of the Corporate Transparency Act (CTA), including the reporting requirements under the Beneficial Ownership Information (BOI) Reporting Rule that is a part of the CTA. The Court found that the reporting provisions under the CTA likely exceed Congress’s constitutional authority, rendering them unconstitutional.

As a result of the preliminary injunction, the CTA’s BOI reporting obligations are temporarily unenforceable, and Reporting Companies (as defined under the CTA (see Overview of the CTA below)) are not required to comply with the CTA’s January 1, 2025, reporting deadline. Notably, the Court did not issue a definitive ruling declaring the CTA unlawful or unconstitutional. Instead, the preliminary injunction only serves to temporarily suspend enforcement of the CTA.

While the Court’s order temporarily halts compliance with the CTA, the government retains the option to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit and to request a stay of the preliminary injunction during the appeal process. The government may also seek an expedited appeal and stay process to immediately address the District Court’s order.  Enforcement could resume if the Court’s decision is overturned on appeal or if the preliminary injunction is lifted. However, the timing of either event remains uncertain.

The preliminary injunction represents a significant development, with far-reaching implications for Reporting Companies across the nation.  Both (a) Reporting Companies that have not yet submitted their BOI Reports, and (b) entities formed after the date of issuance of the Order, are now faced with a decision to either continue with compliance on the expectation that the injunction will not remain in place, or suspend compliance pending final resolution of the matter.

What Should I Do?

If the preliminary injunction is stayed or reversed, it is not clear whether the deadline for filing BOI Reports will be extended.  Therefore, taking a “wait and see” approach could leave Reporting Companies that have not yet filed, and newly formed entities that elect to forestall filing, in the difficult position of complying within a very short period of time.  Therefore, it would be prudent for Reporting Companies that have not yet filed their Initial BOI Report to continue to assemble the required information and to be prepared to file on short notice.

However, if the CTA is permanently enjoined, reporting entities who have not already complied may not have to provide the information required under the CTA.  Owners of Reporting Companies may wish to avoid providing the necessary filing information until required to do so.

Hoge Fenton is here to help assess how this development may impact your business’s reporting obligations. We will continue to closely track any changes and future updates related to the CTA.

Overview of the CTA

Congress enacted the CTA on January 1, 2021, with enforcement delegated to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Aimed at combating illicit financial activities, the CTA mandates that a broad range of companies operating in the U.S. disclose detailed information about individuals who hold ownership interests in or exercise significant control over them. FinCEN estimates that the reporting requirements under the CTA will affect approximately 32.6 million existing entities.

Under the CTA, certain entities established or registered to do business in the U.S. before January 1, 2024, must submit an Initial BOI Report by January 1, 2025. For entities formed between January 1, 2024, and December 31, 2024, the Initial BOI Report must be filed within 90 days of formation. Starting January 1, 2024, all newly formed entities are required to file a BOI Report within 30 days of their formation. These reporting requirements are now suspended pending the outcome of any government appeals or further federal court action.

For a more in depth discussion of the CTA and to determine if your business is required to provide a BOI Report (i.e., whether it is a “Reporting Company”), our team at Hoge Fenton recently published an article on the subject at Avoid Reporting Penalties! Important year-End Reminder to File!