Nationwide Injunction Halts Corporate Transparency Act Enforcement

December 10, 2024

Authors:

Michael P. Croghan, Joseph R. Struble

A U.S. District Judge issued a nationwide preliminary injunction prohibiting FinCEN from enforcing the Corporate Transparency Act (CTA) and the final rule implementing it (Reporting Rule) on Dec. 3 in the case Texas Top Cop Shop, Inc. v. Garland (E.D. Tex.).

A preliminary injunction in federal court is a court order issued at the early stages of a lawsuit to prevent a party from taking specified actions until the case is resolved. It remains in effect until the court issues a final decision, modifies the injunction, or overturns the decision on appeal.

The court’s analysis found that (1) Plaintiffs demonstrated a substantial threat of irreparable harm in the form of unrecoverable compliance costs without an injunction as well as threatened constitutional rights, (2) Plaintiffs are likely to succeed on the merits of their Tenth Amendment challenge that the CTA is neither justified by the Commerce Clause nor the Necessary and Proper Clause, and (3) the threatened harm outweighs any damage the injunction might have on the government.

After finding that an injunction should be issued, the court addressed the scope, finding that a nationwide injunction is appropriate. Finally, the court issued a stay of the CTA Reporting Rule’s Jan. 1, 2025, Beneficial Ownership Information reporting deadline while the injunction remains in place.

What does this mean for business entities?

The court specifically held that neither the CTA nor the Reporting Rule may be enforced by FinCEN, and “reporting companies need not comply with the CTA’s Jan. 1, 2025, BOI reporting deadline pending further order of the Court.” The government filed an appeal on Dec. 6. Unless and until either the court modifies the injunction or the decision is overturned on appeal, all reporting entities are relieved – at least temporarily – of their obligation to file BOI reports before the Jan. 1, 2025 deadline. The injunction could be modified or vacated by the district court or a higher court at any time. It remains to be seen whether reporting companies will be permanently relieved.

FinCEN has acknowledged that “in light of the injunction, 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.” At this time, FinCEN has not indicated whether it will provide additional time for filing reports if the injunction is stayed or lifted.

The injunction does not prohibit companies from filing BOI reports and the FinCEN website is still accepting filings. In some circumstances, a reporting entity may choose to complete and file its BOI reports to avoid uncertainty.