Nationwide Injunction Pauses Enforcement of the Corporate Transparency Act
Update from December 26, 2024: Please see our latest advisory for information regarding recent 5th Circuit litigation related to the injunction.
On December 3, 2024, a federal court issued a nationwide preliminary injunction blocking the enforcement of the Corporate Transparency Act (CTA). This injunction creates uncertainty ahead of the CTA's January 1, 2025, reporting deadline.
In Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., six plaintiffs challenged the constitutionality of the CTA under the First and Fourth Amendments of the Constitution. The U.S. District Court for the Eastern District of Texas ruled in favor of the plaintiffs, issuing a preliminary injunction to block the enforcement of the CTA nationwide.
In his opinion, District Judge Amos L. Mazzant noted that this decision will temporarily stop the filing obligations of an estimated 32.6 million existing reporting companies.
Background
The CTA took effect on January 1, 2024, requiring reporting companies file beneficial ownership information with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN). The law was enacted to increase ownership transparency for the government's aims of preventing money laundering and combatting financial crimes.
Among other things, the CTA requires that companies in existence as of January 1, 2024, submit beneficial ownership information reports to FinCEN by the deadline of January 1, 2025.
If I am a reporting company, how does this impact my filing obligations?
The court's preliminary injunction applies nationwide, temporarily halting CTA enforcement obligations. In its opinion, the court notes that "reporting companies need not comply" with the filing requirements that apply to reporting companies, including the January 1, 2025, deadline, "pending further order of the Court."
As of the time of this advisory, FinCEN has not yet provided further guidance on what this decision means for filing obligations.
Will reporting obligations resume?
The court's injunction does not represent a final decision to eliminate the CTA or its reporting requirements. Preliminary injunctions are provisional measures, designed to temporarily stop further action until the court renders a final judgment. The court that issued the injunction may continue to handle the case until a final decision is made, or the case may be appealed to a higher court for further review.
We believe this means that CTA enforcement and filing obligations are temporarily paused until the court issues a final ruling or the order is appealed by the U.S. Department of Justice.
DWT's attorneys are continuing to monitor new developments with the CTA.