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Corporate Transparency Act Enjoined Nationwide by Texas Federal Court

12.04.24

By David H. Freedman and Jordan M. Small

On Tuesday, December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA). 

The Court in issuing its injunction held that the CTA – which imposed disclosure requirements for over 32 million companies in the United States and required beneficial ownership information reports (BOIR) to be submitted to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025 – was likely unconstitutional and that the plaintiffs’ in the matter had sufficiently shown that they would suffer irreparable harm if the CTA remained in place. 

Specifically, the Court found that Congress, in enacting the CTA, exceeded its powers under the Commerce Clause of the Constitution. As a result of what the Court held was a “constitutional violation,” the Court determined that the proper remedy was to prohibit the enforcement of the CTA nationwide.

As part of this nationwide preliminary injunction, the CTA and its related reporting rule are enjoined and the compliance deadline is stayed under § 705 of the Administrative Procedure Act.  The Court specifically stated that neither the reporting rule nor the compliance deadline may be enforced and that “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline, pending further order of the Court.”

It should be noted that Federal Rule of Civil Procedure 65 permits federal district courts to issue preliminary and permanent injunctions, and places no limit on federal courts’ power to issue injunctions that require defendants to cease taking action against nonparties.

Now What?

The future of the CTA is undoubtedly up in the air. This order, in its specific grant of a nationwide preliminary injunction, reaches farther than any previous decision issued by a federal court regarding the CTA.

Although not definite, the most likely next step is that the government will appeal the injunction to the Fifth Circuit Court of Appeals. As it has with previous relevant decisions, FinCEN will likely publish a response with further guidance on the Beneficial Ownership Information landing page, which can be found here https://fincen.gov/boi. It is too soon to know yet how FinCEN will respond and whether or not deadlines to file will be extended as a result of this nationwide preliminary injunction.

With the uncertainty of the immediate future of the Act, Maddin Hauser is recommending the following at this time:

(a) Entities That Already Filed a BOIR with FinCEN

  • Pause Compliance Efforts. The nationwide injunction enjoins enforcement of the CTA. Nothing further is required at this time.  
  • Monitor Further Case, Legislative and Administrative Developments. Stay updated on case (including a FinCEN response), legislative and administrative developments. Legislation has been pending since last April to repeal the CTA under H.R. 8147 – Repealing Big Brother Overreach Act, which continues to gain momentum by the increasing number of cosponsors to the bill. This will have the attention of the next administration.

(b) Entities That Have Not Yet Filed a BOIR with FinCEN

  • Delay Filing. The nationwide preliminary injunction means that no business (non-exempt reporting company) is currently required to comply with the CTA, but further guidance or court decisions could reinstate the CTA’s enforceability.
  • Consult Legal Counsel. Consult with our firm or your legal counsel on next steps, if any.
  • Prepare for Potential Compliance. By completely pausing or halting compliance efforts, non-exempt reporting companies risk being caught by surprise if the injunction is invalidated and the deadlines are reinstated (or new deadlines are established). With the civil and criminal penalties that may be issued for failure to file the BOIR, non-exempt reporting companies who have prepared reports or assembled the necessary information may want to file despite the Court’s decision as a belt and suspenders approach to avoid not being caught off guard. However, each non-exempt reporting company should make its own risk-benefit analysis.

We will continue to follow these developments and provide further updates as they are available on our CTA blog and other social media.