Corporate Transparency Act: Beneficial Ownership Filing Suspended

On December 3, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction that paused the legal obligation for businesses to disclose their Beneficial Ownership Information (BOI). The Court found that the plaintiffs’ arguments against the constitutionality of the CTA are likely to succeed. This decision is a part of the case Texas Top Cop Shop, Inc., et al. v. Garland et al., which brought forth the allegation that Congress crossed constitutional boundaries in legislating the statute.

The Court has identified the plaintiffs’ concern regarding the BOI legislation and has determined that they had the right to challenge CTA as they showed they would face substantial harm if the law was enforced.

The Court further recognized that the harm to the plaintiffs was real and immediate, stemming from compliance burdens and potential penalties.

The Court acknowledged the merit of the Corporate Transparency Act for combating money laundering and stopping people from hiding illegal activities behind ghost entities. What the Court established in its conclusion, however, is that the CTA does not regulate business activities or interstate commerce, which are under federal jurisdiction. Instead, it disrupts the balance of power between states and federal authority in the U.S. As a result, the law was deemed unconstitutional in its scope.

On December 5, 2024, the Department of Justice appealed the decisions of the Court on behalf of the Treasury. FinCEN has stated its compliance with the Court’s order on its website, noting:

FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect.

This means companies are not required to disclose their beneficial owners and will not face penalties while the injunction is in effect. However, the decision regarding the filings is completely voluntary as they still can submit BOI reports.

What to Expect?

The nationwide injunction temporarily halts mandatory BOI filings. Companies may still submit voluntarily but are not required to do so at this time. If the injunction is dissolved, FinCEN may give a grace period, but nothing is guaranteed by the timeline. The Court acknowledged that resolution of the case will take some time, and anything is contingent upon whether the government seeks expedited relief. Companies should keep their paperwork ready in case compliance is required later.

Suggested Read:

Big BOI Reporting Update: Small Businesses Get a Break from the Deadline!

Corporate Transparency Act: Congress Members Request for Delay