On December 3, 2024, a federal district court in Texas issued a nationwide injunction that prohibits the federal government from enforcing the Corporate Transparency Act (CTA) and the regulation that requires corporate entities registered under state law to report detailed information about ownership.
Enacted in 2021, the CTA and implementing regulations require companies to report to the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025, the name, date of birth, address, and an image of a driver’s license or passport of every “beneficial owner” (BOI Report), who is any person or entity that owns 25% or more of the company, or otherwise exerts “substantial control” over said company. The CTA’s purpose is to create a database of entity ownership to prevent the use of shell corporations for money laundering, fraud, financing of terrorism and other illegal activities.
The plaintiffs, several local Texas companies and a national business trade group, alleged that the CTA is unconstitutional because it violates states’ rights under the 9th and 10th amendments; compels speech and burdens the right of association in violation of the 1st amendment, and violates the 4th amendment by compelling disclosure of private information.
The court ruled that the plaintiffs were likely to succeed on their claims that the CTA is unconstitutional, enjoined the CTA and the FinCEN reporting rule, and stayed the January 1, 2025 reporting deadline until further order of the court. It is unknown how long the injunction will remain in place, and whether the CTA will ultimately be held unconstitutional. The decision is Texas Top Cop Shop v. Garland, Docket #4:24-CV-478 (E.D. Texas).
Until further action by this court or an appropriate appellate court, entities that were required to file BOI Reports do not need to comply with the CTA or the reporting rule. If your entity has already filed a BOI Report, then no further action is required.
Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].