Texas Court Issues Nationwide Injunction Related to the Enforcement of the Corporate Transparency Act

CTA Reporting Requirements Are on Hold Pending Developments of a Texas Case

On December 3, 2024, in the case of Texas Top Cop Shop, Inc. v. Garland, a Texas federal court issued a nationwide preliminary injunction enjoining enforcement of the Corporate Transparency Act (31 U.S.C. § 5336) (CTA) and its reporting rules.

The CTA and the associated regulations (31 C.F.R. § 1010.380) took effect on January 1, 2024, and, as enacted, require certain entities that are classified as reporting companies under the CTA to report their beneficial ownership information and other information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). As drafted, the CTA requires nonexempt reporting companies formed prior to January 1, 2024, to file a beneficial ownership information report (BOIR) with FinCEN by January 1, 2025. Nonexempt reporting companies formed in 2024 must file a BOIR within 90 days of formation (or registration with a U.S. state, if a foreign entity).

The preliminary injunction means that the reporting requirements under the CTA are on hold. The scope of the injunction can be appealed, narrowed or stayed and, if so, the CTA reporting requirements could again be in effect (with penalties and fines applicable for noncompliance) at an unpredictable time.

Practical Considerations

Given the uncertainty regarding a possible appeal or narrowing of the preliminary injunction and the timing of the ruling, it may be prudent for companies to continue preparing for compliance with the CTA requirements. Appropriate action may be for companies to (1) continue to take steps to prepare filings and be ready to file within the original deadline (and monitor the status of the case) or (2) submit filings (which continue to be accepted notwithstanding the injunction) to FinCEN on or before the applicable deadline stipulated in the reporting rule, as enacted. Alternatively, a wait-and-see approach could be taken until there are further developments in the Texas Top Cop Shop, Inc. case. Note that in the event the enforcement injunction is lifted, nonexempt reporting companies formed in 2024, who have not filed an initial report, could be at risk for penalties for their noncompliance if their original 90-day compliance deadline passes during the duration of the stay or otherwise.

Unless reporting companies have made required filings, the Texas case and other developments should be closely monitored to ensure timely action is taken if the stay is lifted or the Texas court’s decision is revised.