Corporate Transparency Act Blocked Nationwide by Texas District Court | Dinsmore & Shohl LLP
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (“CTA”).[1] The CTA, and its Reporting Rule, were set to require approximately 32.6 million existing reporting companies to file beneficial ownership information (“BOI”) reports with FinCEN by January 1, 2025. Pending further proceedings, or cases that can change this result, reporting companies are not required to comply with the CTA’s January 1, 2025 BOI reporting deadline.
The government appealed that decision to the Fifth Circuit on December 5. In addition, the Eleventh Circuit is already reviewing the constitutionally of the CTA following a decision from an Alabama District Court that blocked enforcement of the CTA for the specific plaintiffs involved.[2] Dinsmore will be monitoring both cases for future enforcement of the CTA.
Compliance with the CTA may be required depending on the result of further court developments. Dinsmore’s previous alert on complying with the CTA can be found here.
Decisions Challenging Enforcement of the CTA
(1) National Small Business United v. Yellen
In March 2024, FinCEN published a notice regarding the decision from the Northern District of Alabama court to enter a final declaratory judgment concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining the enforcement of the CTA only for the plaintiffs involved in the case.[3] The Department of Justice (“DOJ”) filed a Notice of Appeal on March 11, 2024 to the Eleventh Circuit. Notably, this decision only applies to the plaintiffs in the case and is not a nationwide injunction. The Eleventh Circuit heard oral arguments on September 27, 2024 and has not yet issued a decision.
(2) Texas Top Cop Shop, Inc. v. Garland
In May 2024, six plaintiffs filed a lawsuit seeking a declaratory judgment that the CTA is unconstitutional and an injunction against its enforcement. The plaintiffs include various entities, reporting companies under the CTA, that have not yet filed a BOI report with FinCEN. The National Federation of Independent Business (“NIFB”) is also a plaintiff to the case and is representing its approximately 300,000 members nationwide; multiple plaintiffs in the case are members of the NIFB.
Plaintiffs challenged the CTA on several constitutional grounds, including that the CTA falls outside of Congress’s power to regulate interstate and foreign commerce because it regulates all entities regardless of commercial activity. On December 3, 2024, the court, without deciding the ultimate constitutionality of the statute, issued the preliminary injunction on the grounds that the CTA and its Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. The court’s order provided that:
[T]he CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.
The scope of the preliminary injunction is nationwide. The court found a nationwide preliminary injunction was appropriate because of the approximately 300,000 members of the NIFB seeking the injunction. The court stated that the NFIB’s membership extends across the country, and that the plaintiffs would not obtain meaningful relief without a nationwide enjoinment of the CTA. While issuing nationwide injunctions on federal laws is controversial, federal courts currently have the authority to issue them. The Fifth Circuit has approved nationwide injunctions in the past. Consequentially, the court’s decision enjoins enforcement of the CTA nationwide.
Takeaways for Reporting Companies
As of now, reporting companies are exempt from the CTA’s BOI reporting requirement, including the January 1, 2025, deadline. This exemption applies both to entities that existed before 2024 and to those formed in 2024, meaning neither group will need to submit a BOI Report to FinCEN at this time. FinCEN will now be unable to enforce the penalty provisions for willful noncompliance of the Reporting Rule.
On December 5, all the defendants in Texas Top Cop Shop, Inc. appealed the order granting the preliminary injunction. It remains to be seen if FinCEN will request that the preliminary injunction be lifted during the pendency of the appeal. There is no timeline for how the Fifth Circuit may act in granting such a stay, so it is possible that if a stay is granted, and the preliminary injunction is lifted, reporting companies may only have a short time period to file BOI reports with FinCEN.
We recommend that entities continue evaluating their CTA compliance requirements and gather the necessary information to be prepared to file BOI reports quickly, should the need arise. A template of the BOI Report can be downloaded here, and entities may file directly through FinCEN’s website if faced with a short deadline.
