On December 3, 2024, the federal district court in the Eastern District of Texas issued an order (Order) for a nationwide preliminary injunction (the “Order”) against enforcement of the Corporate Transparency Act (CTA) in Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.). The Texas federal court found the CTA is likely unconstitutional on the grounds that Congress overstepped its authority under the Commerce Clause, Necessary and Proper Clause, its power to regulate foreign affairs, and its power to lay and collect taxes.
Are Reporting Companies Still Required to Report?
The Order (1) prohibits enforcement of the CTA and regulations implementing its beneficial ownership information reporting requirements and (2) suspends all deadlines to comply with the CTA’s reporting requirements.
The Financial Crimes Enforcement Network (FinCEN) states that companies who are required to file BOI reports (“reporting companies”) “will not be subject to liability” if they fail to report their beneficial ownership information (BOI) with FinCEN while the preliminary injunction remains in effect.[1] While the obligation to file BOI reports is paused, FinCEN will continue to accept voluntary submissions.
Should Reporting Companies Voluntarily Report?
FinCEN has not stated how long reporting companies will have to submit any required reports if the injunction is lifted, including updated reports if the initial report was already filed. If the preliminary injunction is lifted before the end of the year, it is possible the January 1, 2025 deadline will remain in effect.
It can take time to identify the beneficial owners of reporting companies and gather all the necessary information from them to submit a BOI report. Particularly when there are multiple beneficial owners, delays should be expected while a reporting company works to gather their information. If the injunction is lifted and FinCEN provides a short timeframe for getting up to date on reporting obligations, reporting companies may have difficulty meeting that deadline.
Therefore, we recommend that reporting companies submit voluntary BOI reports by the original deadlines even while the injunction remains in force. Those original deadlines are as follows:
- Reporting Companies formed before January 1, 2024 must report by January 1, 2025.
- Reporting Companies formed in 2024 must report within 90 days of formation.
- Reporting Companies formed in 2025 must report within 30 days of formation.
- If any information in the most recently filed BOI report changes, an updated report must be filed within 30 days of the change.
Will the Injunction be Lifted and When?
The injunction is preliminary and could change at any time on appeal. The Department of Justice has already filed a notice of appeal of the Order to the Fifth Circuit Court of Appeals. The Fifth Circuit could also stay the enforcement of the preliminary injunction or modify its scope while considering the appeal.
Whether or not the injunction is likely to be lifted is unknown. The CTA has been challenged in other courts, including in Oregon federal court in Firestone v. Yellen, with mixed results. In Firestone, the Oregon district court denied a preliminary injunction on the grounds the plaintiffs were unlikely to succeed in their arguments that the CTA is unconstitutional.[2]
Because challenges to the constitutionality of the CTA have resulted in inconsistent rulings by federal courts, this issue may be ultimately decided by the United States Supreme Court. If the Supreme Court grants review of one or more of these cases and an injunction is still in effect, it may take quite some time before reporting obligations are reinstated, if at all.
To add another wrinkle, the defendant in this current case, the Department of Justice (DOJ), will receive new leadership under the Trump administration on January 20, 2025. This means the current DOJ may seek an expedited appeal, which could result in the Fifth Circuit quickly lifting the preliminary injunction. If that does not occur, then there is a question as to whether the new DOJ under the Trump administration would continue to pursue the appeal when Trump vetoed the CTA (as part of the National Defense Authorization Act (NDAA)) in December of 2020.[3]
What Should Reporting Companies Do Next?
Non-exempt reporting companies who have not filed an initial BOI report should do so by the applicable original deadline, or as soon as possible after that date if meeting that deadline is not possible. If the preliminary injunction is lifted prior to January 1, 2025, that deadline may be reinstated.
Reporting companies who have filed an initial BOI report should continue to voluntarily submit updated BOI reports when any of the previously reported information changes. Even the expiration or renewal of the form of identification previously reported will require an updated BOI report, even if no information in the form of identification has changed. For example, if a beneficial owner updates their driver’s license to a Real ID, the reporting company must file an updated report with a photograph of the new driver’s license.
Non-exempt reporting companies who choose not to file voluntary reports while the injunction is in force should closely monitor developments and consult with an attorney to understand when, if at all, they need to comply with the CTA. Civil penalties for failure to comply with the CTA are substantial at up to $500 per day, adjusted for inflation (currently $591 per day).
We are happy to help you with your CTA compliance obligations. Please contact us if you would like our assistance with your reporting obligations or with monitoring the status of the injunction.
This material is provided for informational purposes only. The provision of this material does not create an attorney-client relationship between the firm and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel. Do not take action in reliance on the contents of this material without seeking the advice of counsel.
The information contained in this article may or may not reflect the most current legal developments. Accordingly, information in this article is not promised or guaranteed to be correct or complete and should not be relied upon as such. Readers should conduct their own appropriate legal research or seek the advice of counsel.
[1] Financial Crimes Enforcement Network, Beneficial Ownership Information, Alert: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only, https://www.fincen.gov/boi (last visited Dec. 9, 2024).
[2] Firestone v. Yellen, 3:24-CV-1034-SI, 2024 WL 4250192 (D Or Sept 20, 2024).
[3] Donald J. Trump, Presidential Veto Message to the House of Representatives for H.R. 6395 (Dec. 23, 2020), https://trumpwhitehouse.archives.gov/briefings-statements/presidential-veto-message-house-representatives-h-r-6395/. Congress voted to override Trump’s veto and passed the NDAA in January of 2021, which contained the CTA.