Client Alert: Court Temporarily Blocks Enforcement of the Corporate Transparency Act
Related Practices: Business and Estate Planning & Administration
UPDATE (December 27, 2024): A Fifth Circuit Court of Appeals review panel has once again blocked Corporate Transparency Act (CTA) reporting requirements for businesses pending a final decision by the panel on the constitutionality of the law. Read our latest update here.
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UPDATE (December 23, 2024): A three-judge panel of the 5th U.S. Circuit Court of Appeals issued a ruling striking the December 3 injunction.
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UPDATE (December 10, 2024): The Financial Crimes Enforcement Network (FinCEN) has issued an alert in response to the District Court’s injunction, confirming that reporting companies are not currently required to file beneficial ownership information (BOI) and will not be held liable for not doing so while this remains in litigation (FinCEN filed an appeal on December 5). FinCEN has noted that it is still accepting voluntary BOI reports.
The Stokes Lawrence team is continuing to monitor this closely and will share updates as they develop. If you have any questions about how this development may impact your compliance obligations, please contact a member of the Stokes Lawrence team.
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On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that prohibits the federal government from enforcing the Corporate Transparency Act (CTA) on a variety of constitutional grounds.
As we previously advised, the CTA and its implementing regulations, which went into effect January 1, 2024, require “reporting companies” in the United States to disclose information about their beneficial owners—the individuals who ultimately own or control a company—to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) through electronic Beneficial Ownership Information (BOI) Reports.
A group of plaintiffs filed a lawsuit in May 2024 claiming that Congress exceeded its authority under the Constitution in passing the CTA. The December 3 order, issued by United States District Judge Amos L. Mazzant, found that the plaintiffs were likely to succeed on the merits of their claims and issued a nationwide injunction. The Court’s order states that the enforcement of the BOI Reporting Rule is enjoined, meaning neither the CTA nor the implementing regulations adopted by FinCEN may be enforced and reporting companies need not comply with the CTA’s upcoming deadlines for filing BOI reports.
It is important to note that the Court’s December 3 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 Government ultimately prevails on the merits. There is also the possibility that Congress will revise or revoke the CTA or that new implementing regulations will be issued by the new administration.
If you have any questions about how this development may impact your compliance obligations, please contact a member of the Stokes Lawrence team. To stay updated as the situation evolves, connect with us.
