UPDATE: 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.
On December 3, 2024, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction precluding FinCEN from enforcing the Corporate Transparency Act (CTA) at this time.
The case, Texas Top Cop Shop, Inc. v. Garland, Civil Action No. 4:24-CV-478, 2024 U.S Dist. LEXIS 218294 (E.D Tex. Dec. 3, 2024), was brought by a group of plaintiffs challenging the constitutionality of the CTA and seeking a court order preventing FinCEN from enforcing the CTA while the issue of the CTA’s constitutionality is being litigated. (Earlier this year the federal government/FinCEN appealed an Alabama United States District Court ruling that the CTA is unconstitutional, and that appeal is pending with the United States Eleventh Circuit Court of Appeals). The Texas District Court did not rule on the CTA’s constitutionality. Rather, it granted the injunction, stating that “the CTA is likely unconstitutional as outside of Congress’s power” and indicated that the plaintiffs had met their burden of showing they would incur irreparable harm if the court did not stop FinCEN from enforcing the CTA while the CTA’s constitutionality is being decided. Although the defendants (the federal government/FinCEN) urged the Texas District Court to limit the scope of the injunction to only the plaintiffs in the Texas Top Cop Shop case, the Court instead issued a nationwide injunction, citing that it has the authority to do so.
What this means: Per the US District Court’s Order in Texas Top Cop Shop, Inc. v. Garland, the Court is preventing the federal government/FinCEN from enforcing the CTA’s beneficial ownership reporting requirements nationwide, as to ALL “reporting companies” (as that term is defined in the CTA and its implementing regulations), for an unspecified period of time. FinCEN has not yet issued a statement about the US District Court’s Order. The federal government/FinCEN will likely appeal the Order to the US Fifth Circuit Court of Appeals and ask the appellate court to remove the injunction. While we await FinCEN’s statement on the status of CTA enforcement, reporting companies who have not yet complied with the CTA should seek legal counsel on whether to wait to file their BOI reports.
Anticipated questions:
1. Has the CTA been struck down?
No. However, the CTA’s constitutionality is being challenged in the federal courts. There is a possibility that it may be struck down in the future, or it could be upheld. It is too soon to know. On December 3, 2024, a United States District Court in Texas issued a nationwide preliminary injunction precluding the federal government/FinCEN from enforcing the CTA’s beneficial ownership information reporting requirements while the courts are deciding the issue of the CTA’s constitutionality. FinCEN has not yet issued a statement about the US District Court’s Order and the status of CTA enforcement, but we expect FinCEN will issue a statement on its website soon. In the meantime, if you are uncertain whether to file a BOI report, we urge you to seek an attorney’s guidance.
2. Do I need to file a BOI report? Will I be fined if I do not file one?
FinCEN has not yet issued a statement about the US District Court’s Order and the status of CTA enforcement, but we expect FinCEN will issue a statement on its website soon. In the meantime, if you are uncertain about whether to file a BOI report, we urge you to seek an attorney’s guidance.
3. What if I have already filed a BOIR? Can I “un-file” it?
No, we are not aware of any mechanism to “un-file” a BOIR. However, keep in mind that it is a private database, not available to the public. (FinCEN has received approximately 9 million BOIRs.) We are awaiting FinCEN’s guidance on that, which we expect FinCEN will issue soon. In the meantime, you may want to seek advice from your counsel on that issue.
We are all anxiously awaiting further developments and will keep you updated. You can also visit our CTA Resources page for the latest news and information.
