On December 3, 2024, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop Inc. v. Garland granted the plaintiff’s request for a preliminary injunction to block the U.S. Department of the Treasury from enforcing the Corporate Transparency Act (CTA) and its related regulations on the grounds that the CTA is likely unconstitutionally beyond Congress’s power based on the Commerce Clause and Necessary and Proper Clause.
The CTA requires nonexempt reporting companies – generally entities that are formed in the United States or registered to do business in the United States – to file beneficial ownership information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN), an enforcement arm of the U.S. Department of the Treasury. For entities formed before January 1, 2024, the deadline to file BOI reports under the CTA is January 1, 2025.
The Court’s Ruling
With the January 1 filing deadline looming, the court’s ruling temporarily suspends enforcement and compliance obligations under the CTA nationwide, stating that:
it is in the public’s best interest to prevent the Government from enforcing the CTA and Reporting Rule. Due to the fast-approaching deadline for reporting companies to file BOI reports, the court cannot render a meaningful decision on the merits before Plaintiffs suffer the very harm they seek to avoid. A preliminary injunction will preserve the constitutional status quo. Thus, the balance of equities favors issuance of an injunction.
The court’s decision means that the obligation of companies to comply with the CTA and file BOI reports is temporarily halted, pending further rulings from the court.
Next Steps
Although enforcement of the CTA is enjoined nationwide, the court’s order is preliminary and could change at any time on appeal – at final judgment or by virtue of other appellate court proceedings or other guidance issued by FinCEN. Enforcement approaches and priorities could also change under the incoming Trump Administration. In light of this, while the filing of BOI reports is not currently required, companies should continue to carefully monitor CTA developments and be prepared to comply with the CTA if the injunction is lifted.
Notably, the CTA is being challenged in other courts, yielding mixed results. The District of Oregon, in Firestone v. Yellen, denied preliminary injunctive relief, finding that the plaintiffs were unlikely to succeed on their arguments. The constitutionality of the CTA is also being considered by the Eleventh Circuit Court of Appeals. Ultimately, the constitutionality of the CTA may be decided by the Supreme Court.
Anyone with questions regarding the CTA and the future of reporting obligations under the CTA should reach out to their Investment Funds Group contact at Alston & Bird.
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