- posted: Dec. 16, 2024
On December 3, 2024, a federal district court judge in Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), issued a preliminary injunction against the enforcement of the Corporate Transparency Act (“CTA”) by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). So, what does that mean for the millions of companies who have yet to report their beneficial ownership information (“BOI”)?
What is a Preliminary Injunction?
A preliminary injunction is an order by the court to temporarily prevent one party from taking certain actions while a case is pending. It is not a permanent order.
What is the Effect of the Injunction on the CTA?
The preliminary injunction only enjoins the enforcement of and pauses all deadlines to comply with the reporting requirements of the CTA.1 This means that the nationwide injunction against the enforcement of the CTA can be removed at any time or may become permanent. A Notice of Appeal was quickly filed on December 5, 2024, by the Department of Justice, which is litigating on behalf of the Department of the Treasury. If the appeal is successful and the injunction is removed, then the filing deadline may be tolled for only as long as the injunction is in place.
As discussed in our Firm’s article published in the Daily Journal on November 18, 2024, CTA clock is ticking-Are you Prepared?, there are multiple other lawsuits regarding the CTA and whether it is constitutional or enforceable. There are also several bills that have been proposed to alter or extend the filing deadline. This pending legislation is unlikely to be passed prior to the original filing deadline of January 1, 2025. However, the concurrent litigation may be affected by the injunction or have further effect on companies’ obligations under the CTA.
Should Companies Still File Their BOI Reports?
In FinCEN’s acknowledgement of the injunction, it states that companies may voluntarily file their BOI reports (“BOIR”).2 Many companies that have been reluctant to comply with the CTA in the hopes that it would be overturned will likely choose not to file their BOIR, while most entities required to file reports may still be unaware that they are (or were) required to file in the first place. It is our recommendation that entities that may need to file a BOIR if the injunction is lifted should still prepare an internal memorandum for their corporate records setting out how they determined which individuals were required to submit their BOI and collect all the information necessary to file their BOIR. This will ensure the company is prepared to file if any potential new filing deadline comes quickly after lifting of the injunction.
Please see our blog, A Clear-Eyed View of the Corporate Transparency Act, located at www.steinbrecherspan.com, to learn more about the CTA.
Contact our offices for assistance in understanding how the Corporate Transparency Act affects your business and assessing your company’s reporting obligations, eligibility for exemptions, and compliance requirements.
2. Id.
