December 3, 2024 Ruling
On December 3, 2024, Judge Amos L. Mazzant III of 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). The court (like the Northern District of Alabama in its March 1, 2024 decision) held that the CTA exceeds Congress’s enumerated powers and is therefore unconstitutional. While the Northern District of Alabama enjoined enforcement of the CTA only against the plaintiffs in that case, the Eastern District of Texas went further concluding that it was appropriate to preliminary enjoin enforcement of the CTA and the reporting rule thereunder nationwide. The court’s preliminary injunction and stay effectively postpone the compliance deadline for those companies that were subject to the CTA’s requirement to file their beneficial ownership information (BOI) to FinCEN.
Potential U.S. Government Response
The government has 60 days to appeal the decision to the U.S Court of Appeals for the Fifth Circuit. In the meantime, FinCEN will likely issue a notice clarifying its position on the impact of the court’s order, including potentially extending the January 1, 1024 filing deadline. FinCEN has not done so yet. the validity of the CTA is unlikely to be resolved nationwide without Supreme Court review or unanimous decisions from the federal courts of appeals (worth noting is that several district courts have denied similar requests for preliminary injunctions against enforcement of the CTA).
What Does the Ruling Mean for Reporting Entities Subject to the CTA’s Reporting Rule?
- Recommendations for reporting companies that have not filed BOI Reports: Given that the year-end BOI reporting deadline for existing companies is rapidly approaching and uncertainty of whether and when a stay will be granted, we recommend that companies continue to assess their BOI reporting obligations and, as necessary, prepare BOI Reports. However, it is reasonable for reporting companies to hold off on submitting BOI Reports until FinCEN issues further guidance.
- Recommendations for reporting companies that have filed BOI Reports: Reporting companies that have already filed BOI Reports should continue to monitor for any changes to the information submitted in their initial BOI Reports; however, again, we think it is reasonable for reporting companies to wait on submitting any amended or updated BOI Reports until FinCEN issues further guidance.
Further Recommendations
Stay Informed: keep track of legal developments to ensure readiness (on a short notice basis) for any renewed compliance obligations.
Be Prepared: refine internal processes for identifying and reporting beneficial ownership data to minimize future disruptions.
Seek Legal Counsel: contact your CTA advisors to discuss your readiness and compliance strategies, including preparations for the possibility of reinstated reporting obligations.
How We Can Help
Our CTA team at APM has the knowledge and experience to assist you navigate the complexities of the CTA. Whether you require strategic advice, assistance in preparing your reporting systems, or guidance on future compliance, we are here to help. Should reporting obligations be reinstated, we will be happy to support you and your company withits filing requirements efficiently and accurately.
This document is intended to provide only a general background regarding this matter. This document should not be regarded as binding legal advice, but rather a practical overview based on our understanding. APM & Co. is not licensed to practice law outside of Israel.
