This week, a federal court in Texas found the Corporate Transparency Act and its reporting requirements “likely unconstitutional.” The court also temporarily barred the federal government from enforcing the CTA across the nation. However, the legal situation is fast-moving: the government has already appealed the ruling, and its appeal has the potential to restore the CTA’s reporting requirements as early as next week.
For now, businesses should temporarily hold off on making CTA filings, but they should remain prepared to comply with the CTA in the event its legal status changes.
CTA Reporting Basics
As FMJ attorneys have previously explained in multiple venues, the CTA has a significant impact on businesses in Minnesota and across the United States. It requires the beneficial owners of corporations, limited liability companies, and other legal entities to report certain personal information to the U.S. Department of the Treasury’s Financial Crimes and Enforcement Network (FinCEN). These reports are commonly referred to as Beneficial Ownership Information Reports or BOI Reports.
While the CTA exempts certain companies from its reporting requirements, it covers a broad set of legal entities which are generally subject to one of two major reporting deadlines. Entities formed before January 1, 2024 have until January 1, 2025 to file their initial reports with FinCEN. Entities formed after January 1, 2024 have until 90 days after they are formed to file their initial reports with FinCEN.
In the Texas Top Cop Shop Case, a Federal Judge has Temporarily Paused CTA Enforcement Across the Nation
In other lawsuits (click here for an example), litigants have sued to broadly bar the federal government from enforcing the CTA’s reporting requirements. None of those efforts had succeeded until this week, when the plaintiffs in Texas Top Cop Shop, Inc. et al. v. Merrick Garland et al., No. 4:24-cv-00478-ALM (E.D. Tex.) changed that.
In the Texas Top Cop Shop case, one individual, three small businesses, and two non-profit advocacy organizations sued the federal government arguing the CTA is unconstitutional. These plaintiffs filed a preliminary motion asking the court to institute a nationwide ban on CTA enforcement during the pendency of their case.
On December 3rd, the court granted their motion. It held the CTA “likely unconstitutional” because the law probably exceeds Congress’ constitutional powers to regulate interstate commerce, manage foreign affairs, or collect taxes.
The court’s order also bars the government from enforcing the CTA during the pendency of the Texas Top Cop Shop case. Importantly (and unlike a similar decision in another CTA case), this order applies nationwide, and it covers all entities around the country that would have been required to comply with the CTA – not just the parties in the case. As a result, at the time of this publication, the CTA is temporarily a dead letter. But that could change soon because the federal government has already filed its appeal. That appeal has the potential to restore the CTA’s reporting requirements, including the January 1, 2025 reporting deadline for preexisting companies, as soon as next week.
What Should You Do Next?
FMJ is monitoring these fast-moving legal developments. For now, business entities should pause all CTA filings. However, they should remain prepared to comply with the CTA’s original reporting deadlines, including the January 1, 2025 reporting deadline for preexisting companies, in the event the legal process restores the CTA’s reporting requirements in the coming days.
If you have questions about the implications of this decision on your company’s Corporate Transparency Act compliance, FMJ attorneys are here to assist. Please contact Pat Shriver at pat.shriver@fmjlaw.com or Brad Hutter at bradley.hutter@fmjlaw.com with your questions.
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