Thanks to a federal judge in Texas, approximately 32.6 million American businesses just got a reprieve from the confusing and burdensome reporting obligations imposed by the Corporate Transparency Act (CTA). On Dec. 3, 2024, mere weeks before the Jan. 1, 2025 compliance deadline for many covered entities, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction barring the federal government from enforcing the CTA, its implementing regulations, and its Reporting Rule. Per the ruling, “reporting companies need not comply with the CTA’s Jan. 1, 2025, [Beneficial Ownership Information] reporting deadline pending further order of the Court.”
The ruling in Texas Top Cop Shop, Inc., et al. v. Garland, et al. means that, for the moment at least, covered entities that were required to submit “Beneficial Ownership Information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) division on or before Jan. 1, 2025, do not need to do so. That deadline applied to reporting companies formed on or before Jan. 1, 2024. While the order did not expressly address the deadlines for entities formed in calendar year 2024 (90 days after formation) or those formed after Jan.1. 2025 (30 days after formation), the injunction effectively stays enforcement of those reporting obligations as well.
However, it is important to note that the injunction is preliminary, meaning that the constitutionality and enforceability of the CTA are far from settled questions. As the court noted, it “has determined that the CTA and Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. It has not made an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.”
The court that issued the injunction could ultimately decide against issuing a permanent nationwide injunction, though that is unlikely. More likely, the Department of Justice (DOJ) will appeal the ruling and request a stay of the injunction pending the appeal. It did so in a previous case, NSBU v. Yellen, that found the CTA unconstitutional, though the ruling barring its enforcement only applied to the plaintiffs in that case.
To date, neither the DOJ nor FinCEN has issued any statements in response to the injunction. Adding to the uncertainty regarding the future of the CTA, the change in administration coming on Jan. 20 means that even if the DOJ files an appeal, the new department leadership may change course and halt those efforts.
The Bottom Line
As noted, there is a chance that an appellate court may stay the injunction. It could also limit its application to the plaintiffs in the case and may ultimately overturn the ruling. All of these would revive the CTA and its reporting deadlines. As such, covered entities that have yet to submit their BOI information to FinCEN may wish to prepare for such a possibility by conducting the due diligence needed to report their BOI. However, for the moment, covered entities can enjoy the holiday season unburdened by the reporting deadline they would have faced on New Year’s Day.
If you have questions about the injunction or the CTA generally, please contact Thomas Gironda at Ansell Grimm & Aaron.
