Update: The Suspended Corporate Transparency Act

Brief Summary: The U.S. District Court for the Eastern District of Texas granted a nationwide injunction suspending enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) Reporting Rule.  The injunction suspends obligations to file initial BOI reports by January 1, 2025.  The court found that the CTA is likely unconstitutional, but an appeal is expected; however, businesses should monitor deadlines and be prepared to file.

Analysis: On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily suspending enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information Reporting Rule.  The injunction effectively suspends the requirement under the CTA for reporting companies to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).  The injunction applies nationwide, providing that all businesses subject to the CTA’s reporting requirements are relieved of their CTA filing obligations until further notice.  For companies created prior to 2024, the ruling suspends their obligation to submit their initial BOI reports to FinCEN before the January 1, 2025, deadline. For companies created in 2024, this suspends their obligation to report within 90 days of formation.

Appeal Likely, Businesses Should Remain Cautious: Businesses should remain cautious and continue to monitor their reporting obligations. The district court’s injunction is preliminary and likely to be appealed and could be reversed or vacated on appeal. If compliance requirements are reinstated, there is no assurance whether or how the prior reporting deadlines may be extended.  In view of these developments, it seems likely that FinCEN will take action in response before the end of the year, such as issuing interim guidance or a position statement on the case.

Court Ruling: The court’s decision to grant the injunction was based on the court’s preliminary assessment that the CTA and the reporting rule is outside of the power granted to Congress and may violate constitutional protections. In his 79-page opinion, Judge Amos Mazzant ruled that the reporting rule “is likely unconstitutional as outside of Congress's power,” noting that the law only regulates the “existence” of anonymous corporate entities, not their economic or commercial activity or operations.  In granting the injunction, the court determined the injunction should apply nationwide, noting that the CTA and its reporting obligations apply to “approximately 32.6 million existing reporting companies” across the nation. The court determined it could not provide meaningful relief to those affected without enjoining the CTA and reporting rule nationwide.

Therefore, for the time being at least, reporting companies need not comply with the CTA reporting deadlines. The ruling, however, is not a final determination of the CTA’s constitutionality; instead, it only temporarily halts enforcement while the case proceeds.

Per the FinCEN statement on CTA litigation from its website (last accessed at 1:00 PM EST on 12/9/24):“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”