On December 3, 2024, the U.S. District Court for the Eastern District of Texas, in the case of Texas Top Cop Shop, Inc. et al. vs. Garland (U.S. Attorney General), granted a nationwide preliminary injunction that temporarily enjoins or prohibits the United States federal government from enforcing the Corporate Transparency Act (the “CTA”).
For background, the CTA, which went into effect on January 1, 2024, requires “reporting companies” in the United States to report information about their beneficial owners, or the individuals who either own 25% or more of the company or exercise “substantial control” over the company, to the federal government’s Financial Crimes Enforcement Network (“FinCEN”).
In Texas Top Cop Shop, Inc. et al. vs. Garland, a group of six plaintiffs allege that the United States Congress exceeded its authority under the United States Constitution in passing the CTA. In a 79-page order issued by United States District Court Judge Amos L. Mazzant, the Court found that the plaintiffs were likely to succeed on the merits of their claims and, although the plaintiffs sought a preliminary injunction on behalf of only themselves and their members, the Court issued a nationwide injunction instead.
The Court’s order states that neither the CTA nor the implementing rules adopted by FinCEN may be enforced. This means that: (a) reporting companies formed prior to January 1, 2024 need not comply with the CTA’s upcoming January 1, 2025 deadline for filing beneficial ownership reports; and (b) reporting companies formed January 1, 2024 or afterwards need not comply with the CTA’s deadline of 90 days from formation for filing beneficial ownership reports.
Note, however, that the Court’s order is a preliminary injunction only and not a final decision. The Court’s order temporarily pauses enforcement of the CTA on a nationwide basis, but enforcement could resume if the Court’s order is overturned on appeal or the federal government ultimately prevails on the merits. Thus, reporting companies have the option to either: (a) file their CTA reports in accordance with otherwise applicable deadlines in the case that the Order is overturned on appeal or the federal government ultimately prevails; or (b) abstain from filing any CTA reports until there are further developments requiring otherwise. If reporting companies choose to go the latter route, it is strongly encouraged that they actively monitor developments on this topic.
We will continue to monitor developments in this case and will provide additional information as it comes available.
If you have any questions regarding the CTA or the matters discussed herein, please do not hesitate to contact your BrownWinick attorney.