Nationwide preliminary injunction to comply with the Corporate Transparency Act

Texas Top Cop Shop, Inc., et al. v. Garland et al.

On December 3, 2024, the United States District Court for the Eastern District of Texas issued a preliminary injunction with nationwide effect suspending the compliance period under the Corporate Transparency Act. The court concluded in its decision that the plaintiffs in this case were likely to succeed based on their argument that Congress exceeded its authority in enacting the law. After considering the plaintiff’s standing, the court found that proximate harm would occur and that the government had failed to establish the constitutionality of the law under both the Commerce Clause and the Necessary and Proper Clauses of the Constitution.

While noting the laudable purpose of the law to prevent money laundering and illegal use of the anonymity granted under the corporate veil, the court was concerned with the fact that the law did not regulate commercials activityor an instrument of interstate commerce, but rather than undermining the dual power system in the United States and attempting to extend the authority of Congress into an area (corporate law) firmly within the purview of the states.

The Justice Department filed an appeal on behalf of the Treasury Department on December 5, 2024. FinCEN states on its website that it will comply with the injunction as long as it remains in effect. As a result, reporting companies are not currently required to submit useful information and will not be subject to liability while the injunction remains in effect. Voluntary submission is still possible.

What’s next?

Because the injunction is a nationwide ban on requiring reporting companies to file BOIs, we believe it is best practice not to make any new filings with FinCEN at this time. If the injunction is lifted, it is likely that applicants will be granted some extension of time. However, it is too early to assess whether FinCEN will grant such relief or the length of time FinCEN may grant. However, the court that issued the interim injunction noted that a final decision on the matter will take some time. Any immediate change to the court’s decision depends on the government seeking expedited relief from the Fifth Circuit Court of Appeals. Our advice is that reporting companies should continue to prepare their documentation to be able to file and comply with the CTA’s reporting requirements if the injunction is lifted.

We will continue to monitor any resulting changes and make appropriate recommendations.