U.S. District Court Eastern District of Texas issued a ruling yesterday to temporarily halt enforcement of the Corporate Transparency Act (CTA) and the BOI reporting requirements. While this is not the first court decision enjoining enforcement of the CTA, it is significant in the fact that this Court deemed this injunction to apply not only to plaintiffs in this case, but to businesses nationwide.
The Drama:
Six plaintiffs, consisting of small businesses and non-profit organizations representing small businesses, filed suit against Attorney General Merrick Garland, Secretary of the Treasury Janet Yellen and the U.S. Department of the Treasury, and Director of the Financial Crimes Enforcement Network (FinCEN) Andrea Gacki and FinCEN (let’s collectively refer to them as the “Government”), alleging that the CTA violates certain constitutional protections, exceeds Congress’ authority, and imposes significant compliance burdens on small businesses.
The Court found that the CTA imposes significant compliance burdens on small businesses, likely infringing on constitutional rights, and granted the preliminary injunction,
The Court stated that the injunction should apply nationwide, given that the CTA applies nationwide and the relief cannot granted without applying it across the nation. This application is a departure from rulings from other courts that, while similarly finding the CTA was unconstitutional by exceeding Congress’ authority, applied those rulings only to those plaintiffs who brought the lawsuit.
UPDATE- On December 8, 2024, FinCEN officially posted an alert on the BOI reporting page stating that all reporting deadlines are suspended while the injunction remains in effect, and that companies that do not file while the deadlines are suspended will not be subject to liability during that time.
What Happens Next:
Given the fact that this ruling enjoins BOI reporting across the country, it is inevitable that the Government will appeal. UPDATE- On December 6, 2024, the Government filed notice of its intent to appeal the injunction to the next highest court, the Fifth Circuit.
Appeals take time, and, with the end of the year reporting deadline looming in 27 days, it is unlikely we will see a resolution to this issue before then.
What Businesses Should Do:
Continue to Prepare for Compliance: UPDATE- If you’ve not yet filed your BOI report and do not qualify for an exemption from reporting, continue to gather the required documents to do so. Should the injunction be lifted, you may be required to file your report within a short window of time. The BOI reporting page is still active, and companies may still file voluntarily.
Monitor Legal Developments: JH Legal will continue to monitor this litigation and provide you with updates as this issue progresses.
Seek Legal Advice: We here at JH Legal are happy to answer any questions you have on whether your business or organization is subject to CTA reporting requirements and develop a compliance strategy.
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