On Dec. 3, 2024, in the case of Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478-ALM (E.D. Tex.), the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (CTA), and stayed the Jan. 1, 2025 beneficial ownership information (BOI) reporting deadline under the CTA for entities formed prior to 2024. The District Court did not specifically rule that the CTA is unconstitutional, but for purposes of issuing the injunction, concluded that the CTA and the final rule implementing the CTA (the Reporting Rule) are likely unconstitutional because they exceed Congress’ authority.
Other Court Rulings Didn’t Stop CTA Enforcement
The Texas Top Cop Shop decision was not the first time that a U.S. District Court had issued an injunction against enforcement of the CTA. Unlike another U.S. District Court decision, however, the Texas U.S. District Court in the Texas Top Cop Shop case did not limit its ruling to the plaintiff, and instead extended its application of the injunction nationwide. On December 5, 2024, the U.S. Department of Justice appealed the Texas Top Cop Shop ruling to the U.S. Court of Appeals for the Fifth Circuit. The outcome and timing of this appeal are uncertain at this time.
As a result of the Texas Top Cop Shop ruling, all reporting companies aren’t currently required to comply with the CTA’s Jan. 1, 2025 reporting deadline (or sooner, in the case of reporting companies formed in 2024 required to file within 90 days following formation) pending further orders from the Texas U.S. District Court or the outcome of an appeal.
FinCEN Guidance
On Dec. 7, 2024, in reacting to the Texas Top Cop Shop ruling, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) posted guidance on its website (Beneficial Ownership Information Reporting/FinCen.gov. stating that: (1) it will comply with the Texas Top Cop Shop order enjoining enforcement of the CTA and the reporting obligations imposed thereunder while the injunction remains in effect; and (ii) CTA reporting companies will not be required to file BOI reports and won’t be subject to liability if they fail to do so while the injunction remains in effect. The FinCEN guidance also noted, however, that CTA reporting companies may continue to voluntarily submit BOI reports while the injunction remains in effect, that other U.S. District Courts have denied requests to enjoin the CTA and that the government “continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.”
Stay Tuned
Given the fluid nature of these events and the possibility of either the Fifth Circuit or the Supreme Court staying the Texas U.S. District Court’s order pending appeal, companies’ reporting obligations could very well change on short notice.