On December 3, 2024, a Federal District Court in the Eastern District of Texas in the case of Texas Top Cop Shop v. Garland placed a nationwide injunction on the Corporate Transparency Act (the “CTA”), a law regulating business entities that became effective on January 1, 2024. Pursuant to the ruling, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) released a statement confirming that reporting companies are not required to comply with the CTA while the preliminary injunction remains in effect.

The CTA requires entities that are formed by making a filing with the secretary of state or similar body (“reporting companies”) to report their “beneficial owners” to FinCEN on a beneficial ownership information report (“BOIR”), unless otherwise exempt pursuant to the CTA. As defined in the CTA, a beneficial owner is any individual who either (a) directly or indirectly owns or controls 25% or greater of the equity interest of the reporting company or (b) exerts substantial control. For more information on the CTA, please refer to our previous blog.

The plaintiffs in the case claimed that the CTA exceeds Congressional authority and violates the First, Fourth, Ninth and Tenth Amendments of the U.S. Constitution. In reaching its decision to preliminarily enjoin enforcement of the CTA, the court (contrary to the position taken in prior cases by U.S. District Courts in Oregon and Virginia) reasoned that the plaintiffs were likely to succeed on the merits of their case but did not make an affirmative finding that the CTA violated the U.S. Constitution. Nevertheless, the court’s ruling applies nationwide, which means that the looming end of the year BOIR filing deadline for entities created before January 1, 2024, as well as the 90-day requirement to file initial reports for entities created after January 1, 2024 and 30-day requirement to file updates to previously filed reports for any reporting company, are suspended for now.

In response to the Texas court order, on December 5, 2024, the Department of Justice filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit, asking the court to stay the preliminary injunction during the course of the trial.

FinCEN confirmed in a statement posted to its website that while the CTA is enjoined and litigation is ongoing, reporting companies will not be required to file BOIRs and will not be subject to penalties for non-compliance. However, reporting companies may continue to voluntarily submit BOIRs during this time. Notably, FinCEN did not indicate whether any adjustment to the deadline to file would apply if the injunction is lifted, meaning that the status of filing obligations could be subject to change on a short timeline. If the order is stayed and the CTA becomes enforceable again, FinCEN may adjust deadlines, but this outcome is not assured.

Reporting companies should monitor developments of this case and consult with their legal advisors regarding updated CTA compliance requirements, if any.