On December 3, 2024, the federal district court in the Eastern District of Texas issued an order (Order) for a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (CTA) in Texas Top Cop Shop, Inc. v. Garland.[1] Despite the Order, we recommend continuing efforts to be prepared to file beneficial ownership information reports (BOIRs) before the end of the year with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. We caution that compliance with the CTA remains subject to a quickly changing and evolving landscape, including the following:
- Judicial Appeal. On December 5, 2024, the U.S. Department of Justice (DOJ) filed its notice of appeal from the Order on behalf of FinCEN to the U.S. Court of Appeals for the Fifth Circuit. It is unclear whether the appellate court will stay the enforcement of the preliminary injunction or modify the scope of the injunction before the initial reporting deadline of January 1, 2025. In addition to the merits of the Order, the nationwide scope of the preliminary injunction is likely to be an issue on appeal as other federal district court cases dealing with the CTA have either declined to impose a nationwide injunction or have denied injunctive relief. The U.S. Court of Appeals for the Eleventh Circuit heard oral arguments in late September on a case challenging the constitutionality of the CTA, and that appellate court has not yet issued its opinion. Both the plaintiffs in that case and the DOJ have filed notices with the U.S. Court of Appeals for the Eleventh Circuit regarding the Order.
- Executive Branch Guidance. Three days after the Order, on December 6, 2024, FinCEN posted an alert on its website regarding the Order. To date, except in connection with extending the filing deadlines for certain reporting companies in response to five hurricanes, FinCEN has not extended the initial reporting deadline, despite numerous requests that it do so. FinCEN's notice confirms that it continues to believe that the CTA is constitutional and that FinCEN will honor the stay for all deadlines while the Order remains in force, and clarifies that reporting companies may continue to voluntarily submit BOIRs. FinCEN has not stated whether it will grant a grace period for late filers if the Order is lifted or modified after January 1, 2025 or if it is lifted or modified before this date and a reporting company is not able to meet the deadline. Although there is no legal obligation to file the BOIRs while the injunction remains in force, it is uncertain when the compliance deadline will be if the Order is lifted or modified and, therefore, a reporting company may have to act on short notice.
- Congressional Action. The conflicting district court orders may persuade Congress to extend the initial reporting deadline to afford time for the courts to decide the constitutionality of the CTA. But such congressional action (particularly immediately after the recent elections and in the run-up to the holidays) is far from certain. We are closely monitoring legislative efforts to extend the CTA's initial reporting deadline.
For these reasons, we continue to recommend that those reporting companies subject to the filing of initial BOIRs closely monitor developments in this matter and be prepared to file the BOIRs before the January 1, 2025 initial reporting deadline.
[1] Texas Top Cop Shop, Inc. v. Garland, C.A. No. 4:24-CV-478, 2024 U.S. Dist. LEXIS 218294 (E.D. Tax. Dec. 3, 2024). The court amended the Order to correct a typographical error on December 5, 2024.