Corporate Transparency Act Blocked by Texas Federal Court | By: Chris Manderson
On December 3, 2024, a federal court in Texas ruled that the Corporate Transparency Act (CTA) is likely unconstitutional and temporarily blocked its enforcement nationwide. As a result, entities that were required to file Beneficial Ownership Information (BOI) reports with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025, are not required to do so at this time. However, this situation could change quickly depending on further court actions.
The CTA, enacted in 2021, mandates entities to report their beneficial owners to FinCEN. For further details on the CTA and its requirements prior to this injunction, please refer to our December 2023 client alert linked here.
The Texas court ruled in Texas Top Cop Shop, Inc., et al. v. Garland, et al. that the CTA likely exceeds Congress’s constitutional powers. Unlike a prior decision by an Alabama court, which exempted only the plaintiffs in that case, the Texas court’s injunction applies to all reporting entities nationwide.
Link to the court’s ruling on Bloomberg Law.
The government has 60 days to appeal the decision and may request an emergency stay to reinstate the law during the appeals process. Several days after the court’s ruling, FinCEN stated:
"In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.” The ultimate outcome of the litigation, and CTA’s long-term status remains uncertain, and may ultimately be decided by the Supreme Court.
Given the possibility of rapid changes, entities subject to CTA reporting should monitor developments closely, consult with their advisors, and gather Beneficial Ownership information in case reporting requirements are reinstated.
If enforcement resumes, entities should not assume the January 1, 2025 deadline will be extended unless explicitly stated in updated guidance from FinCEN. Additionally, Beneficial Ownership information will still be required by financial institutions to open certain financial and bank accounts.
