FOS has been actively communicating with clients regarding – and monitoring multiple lawsuits challenging – the federal Corporate Transparency Act (CTA), ahead of its upcoming January 1, 2025 reporting deadline for entities formed before January 1, 2024. See for example, https://foslaw.com/corporate-transparency-acts-january-1-2025-deadline-fast-approaching-for-entities-formed-before-january-1-2024/; https://foslaw.com/wp-content/uploads/2023/12/Winter-2023-Client-Newsletter.pdf.
The CTA requires most entities to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Yesterday, December 3rd, 2024, a federal judge in the Eastern District of Texas (Texas Top Cop Shop v. Garland) issued a nationwide preliminary injunction against the enforcement of the CTA and its reporting obligations. This means that for now entities need not comply with the January 1, 2025 reporting deadline.
This ruling is not necessarily a surprise to some legal professionals, considering the multiple other pending lawsuits challenging the law’s constitutionality (including lawsuits challenging the rule in Maine, Ohio, Michigan, and the 11th and 9th Circuits).
In issuing the order, the court ruled that the plaintiffs met the standard for a preliminary injunction by showing: 1) the CTA and its reporting rule threaten the plaintiffs with irreparable harm; 2) a substantial likelihood of success exists in their claims that the CTA is unconstitutional; 3) the threatened harm to plaintiffs in complying with the CTA outweighs any injury to the government; and 4) that preliminary injunctive relief will not harm the public.
The court reasoned the law is likely unconstitutional as outside Congress’s power. It also noted the significant compliance costs the CTA imposes on businesses in preparing required reports.
As of this writing, the Department of Justice has not indicated whether it will appeal this ruling. An appeal, however, seems likely.
FOS will continue to monitor and update clients about further developments in this and other cases. If you have any questions about the impact of this ruling on your business, contact your FOS attorney.
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