CTA Update in light of the Texas Top Cop Preliminary Injunction

The CTA, enacted in 2021, requires non-exempt entities to file a BOI report with FinCEN identifying individuals who are considered beneficial owners, and company applicant(s) for all entities formed since January 1, 2024. The Reporting Rule helps implement the CTA by specifying compliance deadlines—including a January 1, 2025 deadline for companies created or registered to do business in the United States before January 1, 2024.

The December 3, 2024 Ruling

On December 3, 2024, Judge Mazzant of the U.S. District Court for the Eastern District of Texas granted plaintiffs’ motion for a preliminary injunction on constitutional grounds. However, unlike the ruling in the Alabama case which was limited to just the plaintiff's in that action, Judge Mazzant preliminarily enjoined enforcement of the CTA and Reporting Rule nationwide.  Furthermore, the court invoked its power under the Administrative Procedure Act’s stay provision, to “postpone the effective date of” the Reporting Rule.

The Government’s Response

On December 5, the Department of Justice filed a notice of appeal from the court’s opinion and order to the U.S. Court of Appeals for the Fifth Circuit.

FinCEN has since posted a statement to its website which states in part:

"In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports."

What the Appeal and Statement Mean for Entities Subject to the CTA

Given the possibility of either the Fifth Circuit or the Supreme Court staying the district court’s order pending appeal, reporting entities’ legal obligations are subject to change on short notice.  If either the Fifth Circuit or Supreme Court stay the district court’s order pending appeal, the Reporting Rule will become enforceable again, though FinCEN may adjust the rule’s deadlines depending on how long the district court’s order remains in effect.

What should I do now?

Given this was only a preliminary injunction, and a notice of appeal has been filed, we expect things to move relatively quickly.  As such we recommend reporting companies to still gather the information required and be ready to file, in the event a stay of the District Court is ordered, and reporting requirements are reinstated.

If you have any questions regarding this please feel free to reach out to our office HERE.