Insight Corporate Transparency Act Update – Court Ordered Preliminary Injunction Halts Enforcement of the Corporate Transparency Act Nationwide
By Christopher Cook, Steve Frinsko,
Summary
As of the date of this notice, Reporting Companies are not required to file BOI reports with FinCEN, following a nationwide preliminary injunction ordered by a federal U.S. District Court in Texas. According to FinCEN, while the temporary injunction remains in effect, Reporting Companies that would otherwise be required to file BIO reports will not face liability for failing to do so (including those required to file by January 1, 2025). However, FinCEN is fighting the preliminary injunction on several fronts (including appeal and motions to stay the same).
As it stands, the preliminary injunction and reporting obligations under the CTA remain in flux and subject to change on short notice. Reporting Companies should continue to monitor this evolving situation closely.
Background
The Corporate Transparency Act (“CTA”) was enacted into law as part of the National Defense Act in 2021 as an anti-money laundering initiative. As of January 1, 2024, the CTA requires certain entities (otherwise known as “Reporting Companies”) doing business in the United States to file beneficial ownership information (“BOI”) reports with the Financial Crimes Enforcement Network (“FinCEN”). Such BOI reports, among other information, primarily require Reporting Companies to disclose all of their beneficial owners – the real people who ultimately own or control such entities.
The CTA applies to a significant number of businesses (primarily small for-profit businesses), with FinCEN expecting the filing of over 32 million reports. As of November 2024, over 6.5 million BOI reports have been filed.
Critical filing deadlines for Reporting Companies under the CTA are as follows:
- Reporting companies formed before January 1, 2024, have until January 1, 2025, to file.
- Reporting companies formed in 2024 must file within 90 calendar days after receiving actual or public notice that their creation or registration is effective, whichever is earlier.
- Reporting companies formed on or after January 1, 2025, must file within 30 calendar days after receiving actual or public notice that their creation or registration is effective.
- Any updates or corrections to beneficial ownership information previously filed with FinCEN must be submitted within 30 days.
National Injunction
On December 3, 2024, the U.S. District Court for the Eastern District of Texas (Texas Federal Court) in the case Texas Top Cop Shop, Inc. et al. v. Garland et al. granted, via court order, a nationwide preliminary injunction that enjoins (e.g. stops or blocks) the federal government from enforcing the CTA.[1] The Court granted the preliminary injunction based upon concerns regarding the constitutionality of the CTA and whether or not the CTA falls outside Congress’ legislative powers under the Constitution.
Specifically, the Court’s order provides that both the CTA and the related regulations/rules adopted by FinCEN may not be enforced while the injunction remains in place. To that end, the Court stayed (e.g. paused) all deadlines for entities to comply with the CTA, including the requirement that Reporting Companies file BOI reports by the upcoming January 1, 2025 deadline.
As of the date of this notice, the CTA has posted an Alert on its website stating, in part:
“While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
The last sentence is important. While the order may come as a relief for many Reporting Companies, the order is only a preliminary injunction, meaning it only temporarily halts enforcement of the CTA while the order is effective pending appeal or another court ruling. Critically, the CTA’s reporting obligations could become effective at any time if the injunction is overturned. And, as you might expect, the government is actively fighting the temporary injunction.
Notably:
- On December 5, the Department of Justice filed a notice of appeal of the order to the U.S. Court of Appeals for the Fifth Circuit.
- On December 11, the Department of Justice filed a motion in the U.S. District Court for the Eastern District of Texas asking the court to stay the preliminary injunction pending the appeal to the U.S. Court of Appeals for the Fifth Circuit.
- On December 13, the Department of Justice also filed an emergency motion in the Fifth Circuit asking the court to stay the order pending appeal or, in the alternative, to narrow the applicability of the preliminary injunction to just the members of the National Federation of Independent Business (the Plaintiff in the case) rather than all reporting companies nationwide.
Now What?
Given the pending motions and appeal, the preliminary injunction and reporting obligations under the CTA remain in flux and subject to change on short notice. It is possible that the District Court or Fifth Circuit will rule on the DOJ’s motions to stay or narrow the preliminary injunction before the end of the year. If either the District Court or Fifth Circuit stays the current preliminary injunction pending appeal, the CTA and the January 1, 2025, reporting deadline may spring back to life and be effective once again. As a reminder, one option for Reporting Companies wanting to avoid uncertainty is to voluntarily submit a BOI report despite the temporary injunction.
Ultimately, Reporting Companies should closely monitor this evolving situation and contact their legal counsel to better understand how to navigate and comply with the CTA, including reporting rules and regulations.
Other Resources
- Hawley Troxell partner Steve Frinsko’s initial article on the CTA: Corporate Transparency Act – Beneficial Ownership Information Reporting Requirements
- FinCEN BOI Homepage
- FinCEN Small Business Resources
- FinCEN Small Entity Compliance Guide
Footnotes
[1] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478 (E.D. Tex. 2024)
For more information, please contact:
Christopher Cook
ccook@hawleytroxell.com
208.388.4878
Steve Frinsko
sfrinsko@hawleytroxell.com
208.388.4876
This blog is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances. © Hawley Troxell Ennis & Hawley LLP all rights reserved.
