216-447-1551
info@rbslaw.com
FEDERAL COURT PAUSES ENFORECEMENT OF THE CORPORATE TRANSPARENCY ACT
On December 3, 2024, the U.S. Federal District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (“CTA”), including a stay of the CTA’s Beneficial Ownership Information Reporting Rule (“BOIR Rule”). As you may recall from our previous legal alert, the BOIR Rule requires legal entities formed or registered to do business in the United States to report beneficial ownership information to a national database maintained by the Financial Crimes Enforcement Network in the Department of Treasury.
In issuing the preliminary injunction, the Court sided with the Plaintiffs, the National Federation of Independent Business and others who argued that the CTA is unconstitutional on the grounds that it exceeds Congress’ enumerated powers, infringes upon states’ rights, improperly compels speech, contradicts the rights of anonymous association guaranteed by the First Amendment and violates the Fourth Amendment by forcing the disclosure of private information.
The Court’s injunction rests on the conclusion that Congress likely lacks power under the Commerce Clause and the Necessary and Proper Clause to adopt the CTA, reasoning that the CTA burdens business without clear protections against the misuse of the data submitted. Further the Court noted that corporate regulation has historically been the job of the states and that the federal government has been unable to provide any theory that the CTA falls within Congress’s power, making the CTA “likely unconstitutional.”
In granting the preliminary injunction, the Court held that both the CTA and the BOIR Rule are enjoined and that reporting companies “need not comply with the CTA’s January 1, 2025 reporting deadline pending further order of the Court.”
Next Steps:
It should be noted that this preliminary injunction does not permanently eliminate the CTA. The federal government has appealed the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit. If the Fifth Circuit leaves the district court’s order in place, the federal government may then seek emergency relief in the Supreme Court, which could also stay the injunction pending appeal. However, until the opinion is overturned or the preliminary injunction is lifted, it will continue to stand as a nationwide temporary injunction.
What does this mean for business owners?
Those business that have already filed an initial BOIR do not need to do anything further, and are not required to file any further updates to their BOIR pending further action from the courts. Businesses who have not yet filed an initial BOIR should not file the report and should await further action by the courts. Businesses should continue to monitor for updates and additional guidance. Ross Brittain & Schonberg Co., LPA will continue to alert you to any decisions that impact BOIR filing requirements. If you have any questions, please contact Kimberly Basta at kbasta@rbslaw.com