Enforcement of the CTA Temporarily Blocked Nationwide by Texas Federal Court

Key Takeaways

• On Dec. 3, 2024, a federal district court in Texas issued a preliminary injunction that puts on hold any enforcement of the Corporate Transparency Act (CTA). The court’s order states that it applies nationwide.
• The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has publicly responded, indicating that “reporting companies are not currently required to file beneficial ownership information with FinCEN.” 
• The government has already appealed the court’s order. Thus, the long-term status of the CTA is unclear.
• Given the possibility for rapid changes, reporting companies (and others affected by the CTA) should closely monitor developments. If the injunction is lifted, there may be quick deadlines to comply. The prudent approach is for reporting companies to be prepared to quickly file any required reports under the CTA in the event that the injunction is lifted.  

Detailed Overview

On Dec. 3, 2024, a federal district court in Texas ruled that the CTA is likely unconstitutional and issued a preliminary injunction that temporarily blocks enforcement of the CTA nationwide. The preliminary injunction was issued in the case Texas Top Cop Shop, Inc., et al. v. Garland, et al. The court’s order comes just weeks before the CTA’s Jan. 1, 2025, deadline for reporting companies formed/registered before 2024. FinCEN responded to the injunction on Dec. 6, 2024, confirming it will comply with the court’s order. Specifically, FinCEN’s website currently states: “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.”

Generally, the CTA requires limited liability companies (LLCs), corporations and certain other entities to report their beneficial owners to FinCEN, unless they qualify for an exemption. The CTA has faced attacks both in the courts and in Congress, and its long-term status is unclear. To date, two federal district courts have upheld the CTA and its reporting requirements, while two federal district courts have blocked enforcement of the CTA on the basis that the law is unconstitutional. There are several other lawsuits, which are in preliminary stages. The status of the CTA may ultimately be decided by the U.S. Supreme Court.

Importantly, the preliminary injunction issued by the court in Texas is a temporary pause on enforcement; it is not a final decision. Enforcement could resume if the court’s order is overturned on appeal or if the government ultimately prevails. The government has already initiated an appeal with respect to the preliminary injunction and may request an emergency stay of the injunction during the appeal process.  

In light of the recent developments, reporting companies may choose to wait to file their beneficial ownership information reports while the nationwide preliminary injunction remains in effect. Given the possibility for rapid changes, reporting companies (and others affected by the CTA) should closely monitor developments and consult with their legal advisers. If enforcement of the CTA resumes, it is unclear how and whether new CTA filing deadlines will be imposed, and it is possible that there may be quick deadlines to comply. The prudent approach is for reporting companies to be prepared to quickly file any required reports under the CTA in the event the injunction is lifted.