On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (the “CTA”). The Corporate Transparency Act went into effect January 1, 2024, and requires all reporting companies to file information about the beneficial owners of the company the with Financial Crimes Enforcement Network (“FinCEN”).
Judge Amos L. Mazzant of the United States District Court granted the nationwide injunction with a 79-page order finding the 6 plaintiffs who filed the lawsuit were likely to succeed on the merits of their claims. As a result, the CTA is likely unconstitutional under the Tenth Amendment.
The result of the preliminary injunction is the CTA reporting requirements are temporarily stayed, meaning companies formed prior to 2024 do not need to comply with the CTA for the time being. The court’s decision does not specifically stay the compliance deadlines for entities formed on or after January 1, 2024, thus, these reporting companies should continue to assess their compliance obligations under the CTA.
The Court’s order is not a conclusive determination that the CTA is unconstitutional and will likely be appealed by the federal government. FinCEN’s enforcement of the CTA could resume if the Court’s order is overturned on appeal, or the Government ultimately prevails on the merits.
If the injunction is reversed, the CTA filing requirements would then be reinstated. While the Appeals court could then extend the period of time to permit companies to comply, there is no way to predict whether or how much time would be allowed.
Companies that have already filed to satisfy the CTA requirements do not need to take any further action at this time.
Companies that have not yet filed can choose not to file pending the outcome of any appeal. That said, businesses may nevertheless decide it is safer to file the CTA reports to avoid a sudden or potentially unreasonable time limit if the injunction is reversed.
We are monitoring developments and anticipate a statement from FinCEN soon. For companies formed prior to 2024, we are advising that filings are not required pending the injunction being lifted or other court action. For companies formed in 2024, we will continue to advise clients to submit filings until further notice.
Robert T. Smith; Taylor A. Stockemer; Colton T. Meister