The United States District Court for the Eastern District of Texas, in Texas Top Cop Shop, Inc., et al. v. Garland, et al., issued an injunction temporarily stopping enforcement of the Corporate Transparency Act (CTA).
In the Court’s order, Judge Amos Mazzant did not rule whether the CTA is unconstitutional, but said an injunction was warranted because the CTA and its associated reporting rule are likely unconstitutional. This injunction applies nationwide, which differs from the opinions in prior challenges to the CTA that only applied to the named plaintiffs in those cases. While some legal scholars question the validity of a nationwide injunction, the Financial Crimes Enforcement Network (FinCEN), the government agency in charge of enforcing the CTA, released a statement confirming FinCEN’s willingness to abide by the injunction (for now):
“[i]n light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”
However, FinCEN has filed a notice of appeal and will challenge the injunction. The timing of the appeals process is unknown. If FinCEN succeeds in its appeal and the injunction is lifted, it is unclear how this might impact filing deadlines, including the January 1, 2025 filing deadline for all reporting companies formed prior to 2024 that was set to impact millions of entities.
In light of the uncertainty of the appeals process and short timeframe, we recommend reporting companies continue collecting the information needed to complete their beneficial ownership reports to avoid scrambling during the holiday season if the filing deadlines are reinstated. At this time, FinCEN is still allowing reporting companies to file voluntarily – but as noted above, this is not required.
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