Federal Court Halts Enforcement of Corporate Transparency Act - What Does this Mean?

On December 3, 2024, a significant legal development occurred that impacts businesses across the United States. The U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, temporarily blocking the enforcement of the Corporate Transparency Act (CTA) and its associated reporting rule in the case Texas Top Cop Shop v. Garland.

Impact on Businesses

This ruling has far-reaching implications for companies that were preparing to comply with the CTA's reporting requirements:

• The January 1, 2025 deadline for reporting beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) is now suspended.
• Companies are temporarily exempt from filing beneficial ownership reports until further notice. Specifically the order states, "Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. 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.  

Legal Basis and Implications

The court's decision was based on the assessment that the CTA and its Reporting Rule likely violate constitutional protections and may exceed Congressional authority. However, it's crucial to note that this is not a final determination of the CTA's constitutionality. The injunction merely pauses enforcement while the case proceeds through the legal system.

What's Next?

The legal landscape remains uncertain, however, at this time we can anticipate the following:

• An appeal to the Fifth Circuit Court of Appeals, with the possibility of the case reaching the U.S. Supreme Court.
• Congress and FinCEN may take additional actions before the end of the year.
• The injunction could be overturned, potentially reinstating compliance requirements with little notice.

Ultimately, at this time, no business needs to comply with the January 1, 2025 deadline and BOIR is currently at a halt. As such, Lodmell & Lodmell, P.C. will not require CTA filings for newly created entities. Lodmell & Lodmell, P.C. would strongly recommend that clients wait to file any more BOIR until further guidance from the courts. 

This development underscores the importance of staying informed and prepared. Businesses should remain vigilant and continue their compliance efforts to avoid potential civil and criminal penalties if the reporting requirements are suddenly reinstated.