Texas Court Puts a Halt to Corporate Transparency Act: Government Challenges the Decision

On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction staying enforcement of the reporting requirements of the Corporate Transparency Act (CTA). The court’s decision was a preliminary injunction and not a permanent one; thus, this decision is only temporary until further orders by the court. The government wasted no time in filing an appeal, which came on December 5, 2024, indicating that the litigation around the CTA is far from over.

Meanwhile, all eyes watched the move of the Financial Crimes Enforcement Network, FinCEN – the enforcement agency behind the BOI reporting requirements, for further developments. Finally, it spoke with an official alert: businesses currently are not obliged to submit a report according to BOI and will not be subject to any penalty for violation in filing while such a court order is standing. Meanwhile, FinCEN clarified that an enterprise may also submit the report on a voluntary basis if desired.

It further stated:

On December 3, 2024, in the case of Texas Top Cop Shop, Inc. v. Garland, a federal court in Texas issued a nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (CTA) and pausing all reporting deadlines. The Department of Justice, representing the Treasury, appealed the decision on December 5.

This case is one of several challenges facing the CTA nationwide. While some courts have upheld the Act, including rulings in Virginia and Oregon, the government maintains that the CTA is constitutional.

Until the litigation has been sorted out, FinCEN will comply with the Texas court’s order. For now, companies are not obliged to report their ownership structure, and thus, no fines against them in this respect would be levied. Nevertheless, if they wish to, companies can file reports voluntarily.

The FinCEN statement doesn’t address what would occur if the injunction is removed. Companies need to choose to file their BOI report based on the deadline of January 1, 2025, or wait it out and see how events unfold over the coming weeks. If nothing has changed by the end of the year, they will need to decide whether to file for security or rely on the injunction and FinCEN statement.

With FinCEN’s statement, reporting companies would be able to choose to wait and see how the court case evolves. If the injunction is lifted, it is expected that companies will be given a reasonable period to comply, although it may be shorter than preferred. Until FinCEN gives more specific guidance, the companies will need to decide whether to file now or hold off.

The consequences for willful non-filing of the BOI reporting requirements are severe: up to $500 per day in civil fines, up to two years of imprisonment, and a $10,000 fine in criminal penalties. Because of the Texas court order, however, reporting companies are presently not obligated to file BOI information with FinCEN and will not be subject to liability for non-compliance during the duration of the order.

Read More:

Corporate Transparency Act: Navigating Exemptions, Office Requirements, and UBOs

Corporate Transparency Act: Congress Members Request for Delay