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For the most recent update regarding this news, <a href="https://www.michaelbest.com/Newsroom/357702/Enforcement-of-the-Corporate-Transparency-Act-Enjoined-Again-While-Appeal-is-Heard">please click here</a>.

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On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a preliminary injunction enjoining enforcement of the Corporate Transparency Act (“CTA”). Further, holding that “The CTA finds no constitutional solace behind any door,” the District Court stayed the CTA’s reporting deadlines. The CTA, which went into effect January 1, 2024, required most legal entities to file reports (“BOI Reports”) with the Financial Crimes Enforcement Network (“FinCEN”) containing personal information about their beneficial owners by December 31, 2024. As of now, that filing requirement is not effective.

Congress passed the CTA in 2021 and FinCEN issued its implementing rule (“Rule”) in 2022. Under the CTA, most legal entities (“Reporting Companies”) formed in 2024 were required to file BOI Reports with FinCEN within 90 days of formation, while Reporting Companies formed before 2024 were required to file BOI Reports before January 1, 2025. With the deadline for new entities already effective, and the deadline for existing entities only four weeks away, many entities have already submitted their BOI Reports.

However, in Texas Top Cop Shop, Inc. vs. Garland, the Texas District Court recently held that the Commerce Clause of the U.S. Constitution does not grant Congress the power to enact the CTA, and upholding the law would involve “a substantial expansion of commerce power.” Likewise, the District Court ruled that the CTA was not justified by the Necessary and Proper Clause of the Constitution in tandem with Congress’s powers to regulate commerce, foreign affairs and national security interests, and to lay and collect taxes.

Although a federal court ruling from the Northern District of Alabama in March 2024 also found the CTA/Rule to be unconstitutional, the ruling did not have nationwide effect. In this case, the District Court enjoined enforcement of the CTA/Rule and stayed the reporting deadlines nationwide: “Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” Therefore, as of now, there is no reporting requirement with which Reporting Compliance must comply.

However, it is important to note that this decision may not be final. While the United States has yet to publicly announce whether it will appeal the District Court’s decision, many anticipate that it will. As part of that appeal process, the United States may request the appellate court to stay the District Court’s injunction pending the outcome of the appeal. If that were to occur, and the appellate court were to grant the stay, then Reporting Companies would once again be expected to comply with the CTA.

Given the possibility of an appeal, Reporting Companies will need to decide whether to file BOI Reports regardless of the current stay, or to hold off on filing until the United States and appellate court (if appealed) shed light on the future of the CTA.

Michael Best has attorneys who can advise companies on the issues relating to the CTA and can help those companies monitor the ongoing developments surrounding its implementation.

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Texas District Court Stays Corporate Transparency Act Reporting Requirements

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