UPDATE – 12/10/24

After initial publication and contrary to the information below, FinCEN has now updated their website indicating reporting companies were not required to file at this time and that entities will not be subject to liability for failure to report during the injunction. The relevant section states:

While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. 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.

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On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction in the case of Texas Top Cop Shop, Inc., et al. v. Garland,blocking implementation of the federal Corporate Transparency Act (CTA). Concluding that Congress likely exceeded its Constitutional authority in passing the CTA, the Court’s decision included an immediate stay of both the CTA’s beneficial owner information reporting (BOIR) requirements and the December 31, 2024, compliance deadline.

The Scope of the Injunction is Nationwide

While acknowledging that “[n]ationwide relief is a subject of ongoing debate . . .,” the Court nevertheless determined that, “[T]he extent of the constitutional violation Plaintiffs have shown is best served through a nationwide injunction.”   The Court noted that the CTA’s beneficial ownership information reporting requirements impacted more than 300,000 members of the National Federation of Independent Business, one of the plaintiffs in the case, and, more broadly, an estimated 32.6 million existing business entities. The Court ruled that its injunction against the CTA would apply nationally.

What’s Likely to Happen Next?

There is not a lot of clarity on what is likely to happen next. The U.S. Department of Justice has the option to appeal the Texas court’s decision to the U.S. Court of Appeals for the Fifth Circuit and may well do so. However, even if an appeal is filed, it is exceedingly unlikely the Fifth Circuit will intervene in the short time that the current administration has left in office. It is unclear whether the DOJ under the incoming Trump administration would continue to support an appeal if one is filed by the Biden administration. There is also a separate case challenging the constitutionality of the CTA pending in the U.S. Court of Appeals for the Eleventh Circuit based on an earlier, more limited ruling against the enforceability of the CTA which adds additional uncertainty.

What Does This Mean for Businesses Covered by the CTA?

At a minimum, businesses subject to the CTA’s beneficial ownership reporting requirements should continue gathering information to be prepared to file a BOIR by the original December 31, 2024 compliance deadline in the event that the nationwide stay is unexpectedly lifted in the Texas case or affected by a decision by the Eleventh Circuit. 

The trickier question is what to do in the interim before any other ruling. The CTA is currently dead in the wake of the new injunction. As of the writing of this article, FinCEN has not updated its filing webpages or included any information or guidance with respect to the impact of the injunction or FinCEN’s reaction to the ruling.

Risk averse parties may still wish to file the BOIR forms while the site is up “just in case.” Our view is this is not currently legally required after the injunction; however, if the injunction is reversed, it is quite uncertain what will happen. Will the deadlines get adjusted? Will the penalties be waived or adjusted? It is hard to imagine a scenario where businesses that comply with the current legal bar on the CTA then face penalties if the injunction is removed, but stranger things have happened.

We will be providing more updates regarding the status of the CTA and its reporting requirements. If you have questions about the CTA’s requirements or just want to ensure your business is on the right track, please feel free to reach out to Timothy Hughes, at (703) 526-5582 or thughes@beankinney.com, or Doug Taylor, at rdougtaylor@beankinney.com or (703) 525-4000. Our firm practices in Virginia, Maryland, and the District of Columbia in addition to various other jurisdictions and can help you through this process.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.