Texas Court Enjoins the Enforcement of the Corporate Transparency Act

In 2021, Congress enacted the Corporate Transparency Act (CTA), which required certain companies to submit a report to the Treasury Department’s Federal Crimes Enforcement Network (FinCEN) detailing the beneficial ownership interest of the company within a specified deadline, largely dependent on the incorporation or formation date of the entity. Companies created before Jan. 1, 2024 were required to file initial beneficial ownership report by Jan. 1, 2025, companies created during 2024 had 90 days from formation/incorporation to file their initial report, and any companies created in 2025 or later would only have 30 days from creation to file their initial report.

On Dec. 3, 2024, the Eastern District of Texas Court issued a sweeping order prohibiting the enforcement of the CTA. For the time being, the Texas court ruling enjoins the CTA’s enforcement nationwide, therefore negating the requirement of reporting companies to comply with the CTA’s Jan. 1, 2025, beneficial ownership information reporting deadline.

Unfortunately, the court’s order is not as clear as it could have been regarding whether it applies to the 90-day deadline applicable for 2024 formation/incorporations or the 30-day deadline that will be applicable for 2025 formation/incorporations, leaving open to some doubt how the court order will apply to these post Jan. 1, 2024 formation/incorporations. We expect FinCEN may issue a statement establishing clarity on that point. We recommend clients to not abandon their preparations for beneficial ownership information report filings pending the issuance of formal guidance from FinCEN. 

The question of whether the U.S. Department of Justice or FinCEN will appeal the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit is undetermined at this time. It is recommended the reporting companies continue to monitor the developments of the case. 

Anticipated Questions From Clients:

1. Has the CTA been struck down? The CTA has not been struck down officially. The Texas court as noted above issued a nationwide preliminary injunction precluding enforcement of the CTA. The constitutionality of the CTA is still under review by the court.
2. Do I need to file a beneficial ownership information report? FinCEN has not yet issued a statement on the updated procedural requirements following the enjoining of CTA enforcement, but we expect to see guidance on this soon.
3. Is there a way to reverse or “un-file” a previously filed beneficial ownership information report? We are not aware of any mechanism to reverse or “un-file” a previously filed beneficial ownership information report. 
4. What if a beneficial ownership information report was already filed? FinCEN has not yet issued a statement on this yet, but we expect guidance to be issued soon. 

Please reach out to the Brown Rudnick CTA Task Force with any questions.