Corporate Transparency Act (CTA) Update

As discussed in previous PLG Client Alerts, the Corporate Transparency Act (the “CTA”) required many companies formed or registered in the U.S. to submit information to FinCen about the company and its beneficial owners (as defined in the CTA). A federal district court has now granted a preliminary injunction against the enforcement of certain reporting requirement established by the CTA.

Current Injunction: On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.

FinCen’s Response: Other District Courts have refused to enjoin enforcement of the CTA. The Texas Top Cop Shop, Inc. injunction has been appealed. FinCen has stated: “While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

What Should Companies Do Now? No one can predict whether or when the injunction will be lifted or upheld. Moreover, in light of the conflicting decisions on the constitutionality of the CTA, it is not possible to predict when or whether a final decision on the constitutionality of the CTA will be reached. If the injunction is to be lifted, we expect that the order lifting the injunction will provide a time period during which reporting companies will be able to comply with the CTA filing requirements without risk of penalties, although there is no guideline for determining the length of time that will be provided.

Companies have a number of options at this period of time:

1. Companies (both newly formed and existing) can wait and do nothing.
2. Companies can determine whether they are or will be a Reporting Company under the CTA who their beneficial owners are and make arrangements for collecting the information necessary to make a Beneficial Ownership Information (BOI) Report should one be required.
3. Companies can elect to file initial BOI Reports. Such reporting is voluntary.
4. Companies that have filed BOI Reports should consider filing updates if circumstances have changed in light of the short time periods for filing updated BOI Reports.
5. Persons who have obtained FinCen Identifiers should continue to file updates should their information change, as it is not clear that the injunction extends to updating FinCen Identifiers.
6. A company that has filed BOI Reports but now qualify for an exemption should file an updated report indicating it is exempt.

To obtain more information and advice on whether the CTA applies to you, please contact Edward Wender at ewender@potomaclaw.com or Daniel Sheridan at dsheridan@potomaclaw.com.