Urgent Update: CTA and BOI Reporting

On December 3, 2024, a U.S. District Court in the Eastern District of Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements. With the compliance deadline of January 1, 2025, rapidly approaching, this ruling has introduced significant uncertainty for millions of reporting companies.

Background: The CTA and BOI Reporting

The CTA, designed to combat illicit financial activities, requires certain U.S. and foreign entities to report their BOI to the Financial Crimes Enforcement Network (FinCEN). However, in the case Texas Top Cop Shop, Inc. v. Garland, the court ruled the CTA and its reporting requirements likely unconstitutional, citing overreach of congressional authority.

Judge Amos Mazzant’s ruling included:

• Halting enforcement of the CTA and its BOI reporting requirements.
• Suspending the January 1, 2025, compliance deadline.
• Declaring that reporting companies are temporarily exempt from compliance obligations.

Developments: DOJ Files Appeal

On December 5, 2024, just two days after the Texas court’s decision, the Department of Justice (DOJ) filed a notice of appeal with the Fifth Circuit Court of Appeals. This swift action signals the government’s intent to challenge the injunction before the compliance deadline.

Key Points from the DOJ Appeal:

• The DOJ is likely to request a stay of the injunction, potentially restoring FinCEN’s authority to enforce the CTA before January 1, 2025.
• The Fifth Circuit could modify the injunction, restricting its application to the named plaintiffs or a smaller group of businesses.

The court’s decision on the DOJ’s request could occur within days or weeks due to the high-stakes nature of the case.

Implications for Reporting Companies

With the injunction in place, FinCEN is unable to enforce BOI reporting or impose penalties. However, companies should prepare for potential changes, as the Fifth Circuit may issue a decision before January 1, 2025.

Key factors the Fifth Circuit will evaluate include:

• Likelihood of Success: Strength of the DOJ’s case to overturn the injunction.
• Irreparable Harm: The impact on government operations versus business compliance burdens.
• Public Interest: Balancing national security concerns against regulatory overreach.

Similar cases in Oregon (Firestone v. Yellen) and Virginia (CAI v. Yellen) saw courts deny injunctions, suggesting the Texas ruling could face reversal.

Recommendations for Reporting Companies

1. Pause BOI Filings: Companies are not required to file while the injunction is in place.
2. Prepare for Contingencies: Continue gathering and organizing beneficial ownership information in case the injunction is lifted or modified.
3. Stay Updated: Monitor developments from FinCEN, the DOJ, and the Fifth Circuit.

Many companies are proactively collecting BOI data to ensure compliance if the January 1 deadline is reinstated. A sudden reversal of the injunction could leave unprepared businesses scrambling to meet deadlines.

Our Perspective

This ruling highlights the complexities of navigating CTA compliance in a rapidly changing legal environment. While the injunction offers temporary relief, companies must remain vigilant and prepared for shifts in regulatory requirements.

We recommend adopting a balanced approach—pausing filings but staying ready to act swiftly in response to legal or regulatory updates.

Stay tuned for updates as we continue monitoring this evolving situation.

For further guidance or questions regarding the CTA and BOI reporting requirements, please contact our team.