By: Joseph E. Seagle, Esq. – Aspire Legal Solutions PLLC
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act (CTA) and its associated Beneficial Ownership Information (BOI) reporting requirements. This decision temporarily suspends the obligation for reporting companies to comply with the January 1, 2025, BOI reporting deadline.
Historical Context of the Corporate Transparency Act
We’ve been reporting on the CTA in our weekly newsletter since 2022. Congress enacted the CTA in January 2021 as part of the National Defense Authorization Act for Fiscal Year 2021. It aimed to combat money laundering and terrorist financing by requiring corporations and limited liability companies to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The legislation received bipartisan support, passing with veto-proof majorities in both the House and Senate, and was enacted over then-President Donald Trump’s veto. Earlier this year, a district court judge in Northern Alabama also found that the law was unconstitutional under privacy grounds, but enjoined enforcement only against members of the organization that had challenged it.
Where it stands now. Details of the Injunction
The recent injunction arose from the case Texas Top Cop Shop, Inc., et al. v. Garland, et al., where plaintiffs argued that the CTA’s reporting requirements were unconstitutional, citing violations of the Tenth Amendment and concerns over federal overreach into areas traditionally managed by states. Judge Amos Mazzant granted the preliminary injunction, stating that the plaintiffs had demonstrated a likelihood of success on the merits of their constitutional claims. Unlike his Alabama colleague, the Texas judge found that – since the plaintiff’s members are nationwide (as were those in the Alabama case) – his order should be effective nationwide rather than being limited only to members of the National Federation of Independent Businesses (NFIB) or the Eastern District of Texas.
Implications for Previously Submitted Information
Since January 1, 2024, FinCEN has been accepting BOI reports from newly formed entities as well as those existing prior to that date. Many businesses complied by submitting their
beneficial ownership information. Most estimates were that over 36 million businesses would eventually be required to file the BOI reports online. The recent injunction raises questions about the status and handling of this already-submitted data.
FinCEN has not issued specific guidance regarding the treatment of BOI reports filed before the injunction. However, considering FinCEN’s commitment to implementing the CTA as mandated by Congress, it is reasonable to assume that the agency will continue to maintain the confidentiality and security of the information in its possession. The BOI data is stored in FinCEN’s Beneficial Ownership Secure System (BOSS), a secure registry accessible only to authorized government authorities under strict protocols that are just below “top secret” status.
Potential Actions by FinCEN
In response to the injunction, FinCEN may take the following actions:
- Data Retention: Keep securely retaining the submitted BOI data, ensuring it remains confidential and protected from unauthorized access.
- Restricted Access: In accordance with existing legal frameworks, limit access to the BOI data, allowing only authorized personnel and agencies to view the information.
- Await Further Legal Guidance: Do not process or utilize the BOI data until there is additional legal clarity or resolution regarding the CTA’s enforcement.
Potential Future Actions
Given the change in the White House administration and the new incoming congressional majorities, the federal government may pursue several actions in response to this injunction:
- Appeal the Injunction: The Department of Justice could appeal the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit, seeking to overturn the district court’s decision and reinstate the CTA’s reporting requirements.
- Legislative Amendments: Congress might consider amending the CTA to address the constitutional concerns raised by the court, potentially refining the scope of the reporting requirements or providing clearer guidelines to align with states’ rights.
- Supreme Court Review: Given the significance of the constitutional issues involved, the case could ultimately be brought before the U.S. Supreme Court, which currently has a conservative majority. The Court’s interpretation could have lasting implications on the balance of federal and state powers concerning corporate regulation.
Considering that Trump vetoed the legislation when it was first passed, it would be hard to think he would have changed his mind and now support the legislation. As such, it’s most likely that the incoming administration will not offer arguments and briefs in support of the CTA in any appeals. In that case, it is not beyond the realm of possibility that the new Congress may repeal the Act completely. Should that happen, then the new regulations requiring similar reporting of residential real estate ownership by trusts to take effect in December 2025 will likewise be rescinded well before then.
Implications for Florida Entrepreneurs
As a Florida entrepreneur, it’s essential to stay informed about the status of the CTA and its reporting requirements. While the injunction temporarily suspends the obligation to file BOI reports, this situation may change pending appeals or legislative action. Non-compliance with potential future requirements could result in penalties. Therefore, consider the following steps:
- Stay Informed: Regularly monitor updates from reliable sources regarding the status of the CTA and any changes to reporting obligations. We will continue to follow developments and provide updates via our weekly newsletter.
- Prepare Documentation: Even though the reporting requirement is currently halted, organizing and maintaining accurate records of your company’s beneficial ownership can facilitate compliance if the requirements are reinstated.
- Consult Legal Counsel: Engage with legal professionals to understand the injunction’s implications and ensure readiness for any future compliance obligations.
In summary, while the nationwide injunction temporarily relieves the CTA’s reporting requirements, it’s crucial to remain vigilant and prepared for any developments that may affect your business’s compliance obligations.
We hope you found this helpful — Be on the lookout for our next issue! 👋
