The U.S. District Court for the Eastern District of Texas has issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (“CTA”) in Texas Top Cop Shop vs. Garland et al. ( case 4:24-cv-00478 December 3, 2024). The CTA requires certain non-exempt companies to disclose their beneficial ownership information to a federal database maintained by the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of Treasury.
The court granted the preliminary injunction based on its determination that the CTA and the reporting rule promulgated under it may be outside of the power granted to Congress and may violate the United States Constitution. The CTA and the reporting rule cannot be enforced while the injunction is in effect. Furthermore, the January 1, 2025 compliance deadline for non-exempt companies formed before 2024 and the 90-day compliance period for non-exempt companies formed in 2024 are enjoined.
The district court’s injunction is preliminary, likely to be appealed by FinCEN, and could be reversed or vacated on appeal.
In light of the nationwide injunction, businesses should consider their next steps regarding compliance with the CTA. Companies that have filed with FinCEN may pause their compliance efforts because the injunction stops enforcement of the CTA. Businesses that have not filed with FinCEN will not be required to file as long as the injunction remains in effect. Companies, however, should continue to monitor developments because it is not possible to determine whether or how reporting deadlines may be extended if the preliminary injunction is reversed or vacated and they may have to act quickly in such case.
