Government Appeals the Nationwide Injunction Against Enforcement of the Corporate Transparency Act

 Posted on December 10, 2024 in Uncategorized

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act ("CTA") and its January 1, 2025, Beneficial Ownership Information ("BOI") reporting deadline.

As detailed in our prior Blog, the CTA requires most entities formed or registered to do business in the United States to file information about the entity and the individuals who own or control the entity with the Financial Crimes Enforcement Network (FinCEN).

In Texas Top Cop Shop, Inc., v. Garland, (E.D. Tex., No. 4:24-cv-478), Federal Judge Amos Mazzant granted the plaintiffs’ motion for a preliminary injunction and ruled against the enforcement of the act until further determinations are made regarding the constitutionality of the CTA. The Court reasoned that the implementation of the CTA likely exceeds Congress’s powers, and that enforcement of a potentially unconstitutional law is against public interest. Preliminary injunctions are temporary measures, and the Texas District Court’s ruling is not a final determination of the CTA’s constitutionality. Notably, Judge Mazzant’s decision is in direct conflict with other federal district court rulings that denied plaintiffs’ motions for preliminary injunctions in their challenges to the constitutionality of the CTA.

On December 5, 2024, the Government filed its notice of appeal to the U.S. Court of Appeals for the Fifth Circuit challenging Judge Mazzant’s preliminary nationwide injunction. The Government will also likely request a stay against the nationwide injunction, which if granted, will require businesses to still comply with the BOI’s January 1, 2025, reporting deadline.

FinCEN has posted the following on its website in response to the preliminary injunction:

"In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports."

Given the impending deadlines, the hefty penalties for non-compliance, and all of the uncertainties surrounding the enforcement of the CTA, businesses should monitor the Government’s appeal and be prepared to comply with the BOI reporting deadline if Judge Mazzant’s preliminary injunction is stayed, lifted, or modified.

Please contact the attorneys at Mallery s.c. with any questions or concerns regarding CTA compliance.