Compliance with Corporate Transparency Act Reporting Requirements Halted by Preliminary Injunction
In our Client Alert dated March 12, 2024, titled “What Business Owners Should Know About the New Corporate Transparency Statutes,” we described the reporting requirements imposed by the federal Corporate Transparency Act (the “Act”). Under the Act, the deadline for filings by reporting entities formed or, in the case of a foreign entity, registered to do business in a state prior to January 1, 2024 is January 1, 2025. Reporting entities formed or registered to do business on or after January 1, 2024 must file within 90 days of formation or registration (this time frame was shortened to 30 days starting as of January 1, 2025).
On December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division issued an order (the “Order”) granting a nationwide preliminary injunction that: (1) enjoins the Act, including enforcement of both the statute and the regulations implementing its beneficial-ownership reporting requirements, and, specifically, (2) stays all deadlines to comply with the Act’s reporting requirements. The Court did not rule on the Act’s constitutionality. However, the Court stated that the Act “is likely unconstitutional as outside of Congress’s power” and that the plaintiffs in the case had met their burden of showing that they would be irreparably harmed if the Financial Crimes Enforcement Network (“FinCEN”) was not enjoined from enforcing the Act while its constitutionality is being decided.
On December 5, 2024, the U.S. Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal to the Fifth Circuit Court of Appeals. In addition, FinCEN has stated the following: “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.”
It is uncertain whether the Fifth Circuit appeal will yield any decisions before the currently suspended January 1, 2025 deadline. If the Fifth Circuit reverses or stays the Order before then, there is no assurance FinCEN would extend the deadline. Those yet to file should consider how quickly they will be able to complete the required filing should the preliminary injunction be dissolved, taking into account the risk of a short filing deadline being imposed.
Friedman Kaplan attorneys are available to discuss the current state of reporting requirements under the Act. Please contact any of Asaf Reindel, Joel I. Frank, or Daniel R. Greenberg for more information.
This is not intended to provide legal advice for specific situations, and no legal or business decision should be based on its content. If you would like us to advise you on your specific situation, please feel free to contact us.