CTA UPDATE: Federal Court Issues Nationwide Preliminary Injunction Barring Enforcement of the Corporate Transparency Act, Including Approaching Deadlines

A federal judge in Texas recently delivered an early holiday season gift to approximately 32.6 million American businesses facing the rapidly approaching Jan. 1, 2025, reporting deadline under the Corporate Transparency Act (CTA). That gift came in the form of a nationwide preliminary injunction issued on Dec. 3, 2024, by Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas that, for the moment, bars the federal government from enforcing the CTA, its implementing regulations, and its Reporting Rule. Per the ruling, “reporting companies need not comply with the CTA’s Jan. 1, 2025, [Beneficial Ownership Information] reporting deadline pending further order of the Court.”

The injunction issued in Texas Top Cop Shop, Inc., et al. v. Garland, et al. means that Reporting Companies formed on or before Jan. 1, 2024, do not need to report their Beneficial Ownership Information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) division on or before Jan. 1, 2025. While the injunction did not expressly address the deadlines for entities formed in calendar year 2024 (90 days after formation) or those formed after Jan.1. 2025 (30 days after formation), the order effectively stays the enforcement of those reporting obligations as well.

However, it is important to note that the injunction is preliminary, meaning that the order is far from the final word on the constitutionality and enforceability of the CTA. As the court noted, it “has determined that the CTA and Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. It has not made a final determination that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.

What Comes Next

There are several ways the CTA’s fate may play out. The court that issued the injunction could ultimately decide against issuing a permanent nationwide injunction, though the odds are against that given the court’s conservative bent. More likely, the Department of Justice (DOJ) will appeal the ruling and request a stay of the injunction pending appeal. It did so in a previous case, NSBU v. Yellen, that found the CTA unconstitutional, though the ruling barring its enforcement only applied to the plaintiffs in that case.

To date, neither the DOJ nor FinCEN has issued any statements in response to the injunction. The upcoming change in presidential administration on Jan. 20, 2025, only adds to the uncertainty surrounding the CTA’s future. Even if the DOJ files an appeal, the new department leadership may change course and drop those efforts, leaving the CTA to die a judicial death.

What This Means for Reporting Companies

As noted, an appellate court may stay the injunction if the DOJ appeals. An appellate court could also limit its application to the plaintiffs in the case, and it may ultimately overturn the ruling. All of these would resurrect the CTA and its reporting deadlines. Accordingly, Reporting Companies that have yet to submit their BOI information to FinCEN may wish to prepare for such a possibility by conducting the due diligence needed to report their BOI. For the moment, however, such businesses can enjoy the holiday season unburdened by the Jan. 1 reporting deadline they would have otherwise faced.

If you have questions or concerns about your company’s obligations under the Corporate Transparency Act, please contact Dan McGlinn at Kreis Enderle.