Injunction Granted: Enforcement of Corporate Transparency Act on Hold

UPDATE:

Effective December 23, 2024, the United States Court of Appeals for the Fifth Circuit has stayed the district court’s nationwide injunction discussed in this post.  As of that date, reporting obligations and deadlines are back in effect and FinCEN may take enforcement actions. Read the updated article here. 

The U.S. District Court of the Eastern District of Texas recently issued a preliminary injunction that impacts small business owners across the nation. Following the court’s ruling, enforcement of the Corporate Transparency Act (“CTA”) is on hold nationwide. The discussion below includes: (1) a general overview of the CTA, (2) a summary of the court’s decision, and (3) a brief description of what the ruling means for businesses and what may come next.

What is the CTA?

The CTA went into effect in 2024 with the stated purpose of preventing wrongdoers from exploiting corporate entities for criminal gain, preventing terrorism, money laundering and other misconduct. Under the CTA, most small businesses are required to file a beneficial owner information report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCen”). January 1, 2025, was set to be an important deadline for complying with the CTA. This is the deadline by which companies created before January 1, 2024, would have been required to file their initial BOIR. Further under the CTA, applicable entities created in 2024 were required to file their initial reports within ninety days of creation, and applicable entities created on or after January 1, 2025, would have been required to file their BOIR within 30 days of creation.

More details regarding the requirements provided by the CTA can be found in the article noted below and previously published by DeWitt Attorney Nicholas McMichen^[1].

What did the U.S. District Court of the Eastern District of Texas Decide?

In Texas Top Cop Shop, Inc., ET Al., v. Merrick Garland, Attorney General of the United States, ET AL^[2]., the Eastern District of Texas recently considered whether to issue a nationwide injunction regarding the enforcement of the CTA. The court granted the injunction ordering that neither the CTA nor the reporting deadlines may be enforced. The court further noted that a nationwide injunction was the only method to provide meaningful relief, and granting the injunction would not stop further consideration of the constitutionality of the CTA.

What Happens Next?

According to a statement released by FinCen^[3], companies may still voluntarily submit beneficial ownership information reports. Additionally, the Department of Justice has already filed a notice of appeal regarding the court’s decision. Accordingly, business owners should continue monitoring the status of the CTA and compliance requirements as the appeal is considered. However, given the Eastern District of Texas’ decision to grant the injunction, compliance with the CTA’s reporting requirements is not currently required, and there is no legal requirement to file a BOIR with FinCEN.

If you would like more information or have any questions, please reach out to a DeWitt Business Attorney.