On December 3, 2024, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al v. Garland et al, temporarily barring enforcement of the Corporate Transparency Act (CTA).
What This Impacts
Enacted in 2021, the CTA requires businesses operating in the United States to file Beneficial Ownership Information (BOI) reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) for an ultimate goal of preventing financial crimes, including money laundering and funding of terrorism. The CTA defines an owner as someone owning more than 25% of or having substantial control of a company, such as decision-making power over the company structure or finances. There are 23 exemptions for larger companies, including subsidiaries of certain exempt companies, venture capital advisors, investment pools or advisors and public companies. The BOI must include the name, date of birth, address and a unique identification number from a government identification document, or a FinCEN identifier for each owner. Reporting requirements began in 2024 with businesses created or registered during the calendar year required to report within 90 days. For existing businesses, the reporting requirement deadline was set for January 1, 2025. The CTA also allows for civil and criminal penalties if a company fails to file a timely report starting at $500 per day of noncompliance or imprisonment up to two years and a fine of $10,000.
What’s Next
In May 2024, six plaintiffs filed suit claiming that the implementation of CTA reporting requirements exceed Congress’s constitutional authority. Ahead of the January 1, 2025, deadline, the Eastern District of Texas issued a nationwide preliminary injunction agreeing the plaintiffs would succeed on the merits of their case. The injunction does not specifically address pausing enforcement of the 2024 requirements for newly formed or registered companies. This Order is not a final ruling, but until the court rules otherwise, it stays the forthcoming CTA reporting deadline.
Though CTA reporting requirements are now on hold under the temporary injunction, it may be lifted or modified. Companies should consult their attorney to make sure they have completed an analysis to determine their reporting requirements and be prepared to submit reports as needed pending a future ruling. NAA’s Legal Affairs Department will continue to monitor this case and provide future updates as they become available.