On December 3, 2024, the US District Court for the Eastern District of Texas found that the Corporate Transparency Act (CTA) was likely unconstitutional and issued a preliminary injunction to that effect. See Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24).
The CTA was enacted in 2021, and was meant to combat illegal activity, such as tax fraud, money laundering, or financing for terrorism by requiring specific U.S. businesses operating in or accessing the U.S.’s market to report additional information regarding ownership. Businesses that met the CTA’s specific requirements were to complete Business Ownership Information (BOI) reports and submit them to the United States Department of the Treasury Financial Crime Enforcement Network (FinCEN). The BOI reports were intended to help identify individuals that are associated with the reporting business. This information would become a part of the federal government’s efforts to make it more difficult for bad actors to benefit from ill-received gains, such as gains realized through the use of shell companies, opaque ownership structures, or the like.
The US District Court for the Eastern District of Texas ruled the CTA as unconstitutional because it believes Congress exceeded its constitutional authority by enacting the law, arguing that the federal government does not have the power to enact such extensive disclosure of BOI from companies.
The injunction issued in Texas prohibits the federal government from enforcing the CTA’s regulations nationwide. FinCEN, which is unable to enforce BOI filing requirements while the case is pending, has stated that there will be no liability for reporting companies that fail to report by the deadline which had been scheduled for January 1, 2025. They’ve prepared responses to frequently asked questions in response to an influx of inquiries regarding the BOI reporting rule, which can be found here.
Although reporting companies are not currently required to do so, it would be prudent of reporting businesses to obtain the information necessary to complete a BOI report, in case the reporting is once again required in the event that there is a reversal of the recent preliminary injunction.