In the ongoing case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction on December 3, 2024, halting the enforcement of the Corporate Transparency Act (CTA). Following this order, the Department of Justice (DOJ) filed a Notice of Appeal on December 5, 2024, and sought a stay of the injunction, which would have the effect of suspending the injunction until an appeal is completed.
A temporary stay was granted by a panel of the U.S. Court of Appeals for the Fifth Circuit on December 23, 2024; however, this order was vacated by a different panel of the same court on December 26, 2024. Consequently, the injunction issued by the district court remains in effect and reporting companies are not currently required to file beneficial ownership information with the U.S. Department of Treasury’s (Treasury) Financial Crimes Enforcement Network (aka FinCEN). On December 31, 2024, the DOJ took another shot and sought a stay of the injunction from the U.S. Supreme Court, and the matter remains pending.
Despite the injunction, companies may voluntarily submit beneficial ownership reports (BOIRs) to FinCEN if they choose to do so.
Broader Context and Other Legal Challenges
The Texas Top Cop Shop case is just one of several legal battles surrounding the CTA. Notably, other cases brought before federal district courts include:
- Northern District of Alabama:
- On March 1, 2024, in Isaac Winkles, et al. v. Yellen, et al., the court ruled that the CTA exceeds Congress’s constitutional authority and issued a declaratory judgment against its enforcement. The Treasury has appealed this decision, and the appeal is pending before the U.S. Court of Appeals for the Eleventh Circuit.
- Western District of Michigan:
- On April 29, 2024, in Small Business Association of Michigan, et al. v. Yellen, et al., the district court denied a motion for a preliminary injunction, allowing the CTA to remain in effect.
- District of Oregon:
- On September 20, 2024, in Firestone, et al. v. Yellen, et al., the court denied a request for a preliminary injunction, finding the plaintiffs unlikely to succeed on their claims that the CTA is unconstitutional.
- Eastern District of Virginia:
- On October 24, 2024, in Community Associations Institute, et al. v. Yellen, et al., the court ruled against the plaintiffs’ motion for a preliminary injunction. The court determined that Congress acted within its constitutional authority in enacting the CTA and rejected arguments based on the First and Fourth Amendments.
Government’s Position
Despite ongoing legal challenges, the federal government maintains that the CTA is a critical tool in combating financial crimes. Courts in Michigan, Oregon and Virginia have upheld the CTA’s constitutionality, reinforcing the Treasury’s position. The Treasury and the DOJ continue to vigorously defend the CTA in court, in an attempt to ensure that the law’s objectives are met.
Implications for Reporting Companies
For now, due to the injunction in Texas Top Cop Shop, reporting companies are not obligated to submit beneficial ownership information. However, those who wish to remain proactive may voluntarily file BOIRs with FinCEN. It is essential for businesses to stay informed about the status of ongoing appeals and potential changes to compliance requirements.
Conclusion
The legal landscape surrounding the CTA remains fluid. Businesses affected by the CTA should monitor updates closely and consult with legal professionals to ensure compliance with any future rulings or regulatory changes. While the outcome of these legal challenges is uncertain, the federal government remains committed to upholding the law and its intended purpose of promoting financial transparency and fairness.