On Dec. 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction of the Corporate Transparency Act (CTA) and its implementing regulations. The CTA took effect on Jan. 1, 2024, and requires certain entities to report beneficial ownership information (BOI) and certain related information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Background

The CTA was enacted in 2021 as part of the Anti-Money Laundering Act of 2020 to combat illicit financial activity, such as money laundering, tax fraud and financing of terrorism. The CTA requires certain business entities, or CTA “reporting companies” (including certain corporations, limited liability companies and certain other entities created or, with respect to non-U.S. entities, registered to do business in any U.S. state or tribal jurisdiction) to report information about the company and its beneficial owners (i.e., the individuals who own or control the business) to FinCEN.

Under the CTA, reporting companies created or registered before Jan. 1, 2024, were required to file their initial BOI reports by Jan. 1, 2025; reporting companies formed in 2024 were required to file within 90 days; and reporting companies formed in 2025 and beyond were required to file within 30 days of formation. FinCEN began accepting BOI reports on Jan. 1, 2024.

Court Ruling

In Texas Top Cop Shop, Inc. v. Garland, a group of small businesses and the National Federation of Independent Business argued that the CTA was unconstitutional and sought a preliminary injunction to stay enforcement of the CTA, including its reporting requirements. In a decision issued on Dec. 3, 2024, the Texas federal district court held in favor of the plaintiffs and issued a nationwide preliminary injunction of the CTA.

The injunction halts the enforcement of the CTA’s reporting requirements, including the Jan. 1, 2025, BOI reporting deadline for most covered entities.

Employer Takeaways

While reporting companies are not currently required to file their initial BOI reports by Jan. 1, 2025, the injunction is temporary. Additionally, the U.S. Department of Justice (DOJ) has filed a series of appeals, including an emergency motion filed on Dec. 13, 2024, to stay the nationwide injunction. Therefore, employers should anticipate uncertainty, continue to monitor for updates, and remain prepared to comply with the law’s reporting requirements in the event the court ultimately declines to issue a permanent injunction or the DOJ’s appeal is successful.

[This Legal Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2024 Zywave, Inc. All rights reserved.]

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