Enforcement of the Corporate Transparency Act (the “CTA”) and its implementing regulations (referred to herein as the “Reporting Rule”) – which require certain business entities formed or registered to do business in the United States (referred to herein as “reporting companies”) to report beneficial ownership information to the Treasury Department – was preliminarily blocked nationwide by a Texas federal court on Tuesday, December 3, 2024.
Entities subject to the Reporting Rule that were formed prior to 2024 were facing a January 1, 2025 deadline to submit their initial beneficial ownership information reports (“BOI Reports”) to the Treasury Department. For now, the obligation to submit BOI Reports is stayed as a result of this ruling. But this is unlikely to be the final word on the enforceability of the CTA, as we anticipate the government will immediately appeal this case to the Fifth Circuit, and a further appeal could be taken to the United States Supreme Court.
Thus, for now, reporting companies are not required to submit BOI Reports by the January 1st deadline. However, if the Fifth Circuit stays enforcements of the injunction before year-end, reporting companies will be required to comply by the January 1st deadline. Reporting companies that decide to “wait and see” need to pay close attention to developments.
Wiggin and Dana will continue to monitor cases and Treasury announcements related to the CTA and will provide updates as they become available. For more details on the ruling, continue reading below.
The Opinion
The injunction was issued at the request of six named plaintiffs, including one individual and five entities. One of the entities, the National Federation of Independent Businesses (“NFIB”) is an organization suing on behalf of its approximately 300,000 members.
In issuing the decision, Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas “determined that the CTA and Reporting Rule are likely unconstitutional for purposes of a preliminary injunction” and that their implementation would irreparably harm reporting companies if they were forced to comply.
The government urged the U.S. District Court to tailor relief to only the named plaintiffs, but Judge Mazzant noted that NFIB’s membership extends across the country and meaningful relief could not be provided without enjoining the CTA and the Reporting Rule nationwide, specifically stating that “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline[.] ”The Court did not make an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution, but the preliminary injunction applies nationwide, halting enforcement of the beneficial ownership reporting requirements across the entire United States.
The full case can be read at Texas Top Cop Shop, Inc. v. Garland.