On December 3, 2024, the District Court for the Eastern District of Texas issued a preliminary, nationwide injunction delaying enforcement of the Corporate Transparency Act (“CTA”) and the impending January 1, 2025 deadline for filing reports of Beneficial Ownership Information (“BOI”) as required by regulations issued by the Secretary of the Treasury to implement the CTA.
The CTA was enacted on January 1, 2021 for the stated purpose of preventing certain illicit international activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption. The CTA requires corporations, limited liability companies, or similar entities that do not qualify for an exemption to file reports identifying the beneficial owners of the entity with the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”). Under the regulations, non-exempt entities created before January 1, 2024 were required to file BOI reports no later than January 1, 2025. Entities created in 2024 have 90 days to file BOI reports from the date of formation, and entities created on or after January 1, 2025 have 30 days to comply.
In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Judge Amos L. Mazzant, III found that the CTA is likely unconstitutional as Congress exceeded its Constitutional authority in enacting the CTA. Civ. Action No. 4:24-CV-478 (E.D. Texas Dec. 5, 2024). In its Amended Memorandum and Order, the Court stated that “sanctioning the CTA under the Commerce Clause would be to rubber-stamp a ‘new form of federal power’ . . . [that] threatens the very fabric of our system of federalism.” Id. The Court enjoined, on a preliminary basis, both the CTA and enforcement of regulations prescribed by FinCEN under 31 C.F.R. 1010.380, and stayed all related compliance deadlines. Id. The Court stated that “companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” Id. On December 5, 2024, the Department of Justice filed an appeal to the Fifth Circuit Court of Appeals against this preliminary injunction. FinCEN subsequently issued an alert on its website advising that “reporting companies are not currently required to file their [BOI reports] with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.” https://fincen.gov/boi
By: Julie F. Montgomery, Partner, Donald K. Ludman, Partner and Jacob R. Schmidt, Associate at Brown & Connery, LLP