On Tuesday December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction which precludes enforcement of the Corporate Transparency Act (CTA) (See, Texas Top Cop Shop, Inc. v. Garland).
The Texas case is one of several legal challenges to the CTA at various stages of consideration. Earlier this year, the U.S. District Court for the Northern District of Alabama ruled the CTA is unconstitutional, but limited its decision to apply only to reporting companies which were members of the National Small Business Association on or prior to March 1, 2024. The Alabama case is currently awaiting judgment by the Court of Appeals for the Eleventh Circuit. The Texas Court’s injunction is not as limited as the Alabama Court’s decision, and halts enforcement nationwide. As a result of the Texas Court’s injunction, as of December 3, 2024, reporting companies formed before January 1, 2024 are not currently required to file Beneficial Ownership Information Reports (“BOIR”) before January 1, 2025, and newly formed companies are not required to file BOIRs within ninety (90) days of formation.
The Texas Court’s decision was not a final determination on the merits, and preliminary injunctions can be appealed on an expedited basis. As of December 9, 2024, the government has appealed the order, which could result in a stay of the injunction or a reversal. The appeal could be heard and decided before the end of 2024, and a stay or reversal could have the effect of reinstating all BOIR reporting deadlines and daily penalties for non-compliance.
Due to the Texas Court’s injunction, there is currently no requirement to file a BOIR, however, FinCEN is still accepting BOIRs and reporting companies may choose to file if they wish to do so.
It is recommended all “reporting companies” under the CTA continue to gather information necessary to prepare BOIR, including gathering the personal identifying information for beneficial owners required to be submitted with the BOIR. Efforts to gather and organize the required information now will allow the reporting company to quickly comply with the CTA in the event the deadlines are reinstated. It is unclear how the deadlines will be treated if the preliminary injunction is reversed or stayed, so each reporting company should be prepared to submit its BOIR quickly, if not immediately, in the event the deadlines are reinstated.
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