Texas Federal District Court Enjoins Enforcement of CTA
The United States District Court for the Eastern District of Texas has issued a nationwide injunction halting the enforcement of the Corporate Transparency Act (CTA). The Order stays all CTA filing deadlines pending further order of the Court. Like an earlier case in the United States District Court for the Northern District of Alabama, the Texas court found that the CTA is unconstitutional. Unlike the Alabama case which limited its holding to the parties in the case, the Texas decision calls for a nationwide injunction.
The Financial Crimes Enforcement Network (FinCEN), has acknowledged the current validity of the preliminary injunction but has appealed the court’s Order. FinCEN issued the following statement:
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 Texas case is only one of several cases in which plaintiffs have challenged the CTA. Other courts have denied requests to enjoin the CTA. While the preliminary injunction is in place, FinCEN will comply with the Order. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
It is not clear what will happen if the injunction is lifted. Would FinCEN allow for a reasonable time to comply, or would they demand immediate compliance? Reporting companies who have not yet filed their BOI report will need to decide whether to (1) file reports by the January 1, 2025, deadline (this deadline is applicable to all reporting companies formed before January 1, 2024), or (2) see what happens with the government’s appeal. If the latter option is chosen, reporting companies and their advisors should keep a close eye on the case.
