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The U.S. District Court for the Eastern District of Texas has entered an injunction, enjoining all enforcement of the requirements of the Corporate Transparency Act (the “CTA”). See, Tex. Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 U.S. Dist. LEXIS 218294 (E.D. Tex. Dec. 3, 2024). Under the CTA, corporate entities, and each individual who owns or controls them (the so-called “Beneficial Owners”), must file a Beneficial Ownership Interest Report (“BOIR”). The BOIR requires disclosure of the Beneficial Owner’s name, date of birth, residential address, and the submission of a valid form of identification. It is filed with the Financial Crimes Enforcement Network (“FinCEN”) – a bureau of the U.S. Department of Treasury with the goal of being used by the government to monitor and deter illicit activities (such as tax evasion, money-laundering and other “bad acts”) through transparency.
The CTA requires all existing entities formed on or before December 31, 2023 to file their BOIR(s) by no later than January 1, 2025. It requires all entities formed in 2024 to file a BOIR within 90 days of formation and requires entities formed in 2025 to file a BOIR within 30 days of its formation. (For additional information, see https://epsteinostrove.com/new-corporate-reporting-requirement/). For now, all deadlines are on hold.
In Texas Top Cop Shop, Plaintiffs argued that complying with the CTA would, among other things, violate their constitutional rights under the First Amendment (by compelling speech and burdening their right of association), Fourth Amendment (by compelling disclosure of private information), and Ninth and Tenth Amendments (by intruding upon States’ rights). They also argued that the final rule implementing the CTA (the “Reporting Rule”) is unconstitutional and should be set aside under §706 of the Administrative Procedure Act.
On December 3, 2024, the U.S. District Court for the Eastern District of Texas determined, among other things, that Plaintiffs had successfully demonstrated a substantial likelihood of success on the merits of their Tenth Amendment Challenge. It, therefore, issued a preliminary injunction (1) enjoining enforcement of the CTA and the Reporting Rule; and (2) staying the January 1, 2025 reporting deadline, pending further order of the Court. The Department of Justice has already filed a Notice of Appeal.
For now, and until further order of the Court, corporate entities in the United States and their Beneficial Owners are not required to file a BOIR. Meaning that neither entities nor Beneficial Owners are facing the steep penalties that come with failing to comply with the CTA. FinCEN also issued an Alert, titled “Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only[,]” discussing the CTA and Texas Top Cop case. The Alert explains, in part,
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
(See https://fincen.gov/boi).
Further Court proceeding will take place, and Epstein Ostrove, LLC will issue additional updates, in the coming months when they are available.