On December 3, 2024, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act ("CTA") in Texas Top Cop Shop v. Garland et al. The CTA, which took effect on January 1, 2024, requires most domestic U.S. entities and foreign entities registered to do business in the U.S. to report their beneficial ownership information ("BOI Report") to the Treasury Department's Financial Crimes Enforcement Network ("FinCEN") by January 1, 2025.
In its ruling, the Court reasoned that the act burdens businesses with significant compliance costs without clear protections against misuse of the submitted data. Further, the Court noted that corporations are created under state law, and it follows that corporate regulation has historically been the job of the states. The Court held that the federal government has been unable to provide the court with any theory that the CTA falls within Congress's power, and therefore, the CTA appears likely unconstitutional.
What does this mean for business owners?
Many businesses have already filed their initial BOI reports, either because they were already required to due to the 90-day filing deadline for newly-formed businesses, or because the deadline to file for all other businesses of January 1, 2025 was fast approaching. Those who have already filed should not do anything further (including filing any updated reports) until a final decision is reached in the case.
For those business owners who have not yet filed an initial BOI Report, efforts to prepare and file such report can be halted for now until a final decision is reached in the case, which may not happen for some time.
Because this is a preliminary, not final, decision, business owners should be on alert for further updates in the case to ensure they remain in compliance, particularly if the injunction is overturned in the future and enforcement of the CTA is reinstated. If the injunction is overturned on appeal, businesses may need to act quickly to meet their reporting deadlines.
If you have any questions regarding this ruling and its impact on your business, do not hesitate to contact your WHP counsel.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.