US District Court Halts Reporting Requirements of the Corporate Transparency Act

The US District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting the reporting requirements of the Corporate Transparency Act.

On December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., a federal district court in the Eastern District of Texas, issued an order granting a nationwide preliminary injunction that (1) enjoins the Corporate Transparency Act (CTA), including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements.

The basis for the opinion was that the CTA exceeds US Congress’s powers under both the Commerce Clause and the Necessary and Proper Clause.

The US Department of Justice, on behalf of the US Department of the Treasury, filed a Notice of Appeal on December 5, 2024.  

On December 7, 2024, FinCEN posted a notice on its web site stating the following:

While this litigation is ongoing, FinCEN will comply with the order issued by the US District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.

NEXT STEPS

The scope of the injunction may face challenges on appeal, and the timing of the appeal is likewise uncertain. If the injunction’s scope is limited or the government’s appeal is successful, companies could be required to file beneficial ownership information on short notice.

In consideration of these developments, companies should decide if they would prefer to voluntarily file their beneficial ownership information or take a “wait-and-see” approach pending the outcome of the appeal. Companies opting not to voluntarily file should nevertheless consider completing the analysis required to determine the reporting companies and their beneficial owners so that they can be prepared to file if the filing obligation is reinstated.

Morgan Lewis will continue to monitor any developments pertaining to this case as they arise.