Indiana Business Law Blog
The Corporate Transparency Act (CTA) requires most small business corporations and limited liability companies to file Beneficial Ownership Information Reports (BOI reports or BOIRs) with the Financial Crimes Enforcement Network (FinCEN), a part of the United States Department of Treasury. The purpose of the reports is to give law enforcement information regarding the people who own or control companies that may not otherwise be available to them, primarily for the purpose of investigating money laundering and other financial crimes. For companies that were formed before January 1, 2024, BOIRs are due by January 1, 2025.
At least they were before this week. On December 3, the United States District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland (civil action number 4:24-CV-478) ruled that the CTA is likely unconstitutional and issued a nationwide preliminary injunction prohibiting the enforcement of the BOIR requirement. In doing so, the court wrote, “[R]eporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
For several reasons, this is not the last word on the CTA. First, the Government has already appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, which could set aside the preliminary injunction.
Second, a preliminary injunction lasts for the duration of the litigation. After a full trial, the District Court could issue a permanent injunction, or it could change its mind and rule that the CTA is constitutional after all.
Third, after a full trial, the losing side can appeal again to the Fifth Circuit, which could reverse the trial court’s final judgment.
Fourth, there are other cases dealing with the CTA. One other U.S. District Court also ruled that the CTA is unconstitutional and enjoined enforcement of the BOIR rule, but only against the members of the plaintiff in that case, the National Small Business Association. An appeal of that case is pending before the Eleventh Circuit of the United States Court of Appeals. Two other U.S. District Courts have decided that the CTA and BOIR rule are constitutional.
How can we have such a hodge-podge of court decisions? Because U.S. District Courts have no duty to follow the decisions of other District Courts. In fact, they have no duty to follow decisions of the U.S. Court of Appeals, other than decisions of the Circuit for the region where the District Court is located. For that reason (and others), a nationwide injunction issued by a District Court is a controversial concept.
Another wild card is what the Government will do. So far, neither FinCEN nor the Department of Treasury has issued a press release about the Texas case, and as far as we can tell, FinCEN is still accepting reports through its website. Either of those things could change at any moment, maybe even before we have time to post this article. See our update on FinCEN’s Response to the court decision.
So what should businesses do? As noted above, reporting companies need not report as long as the injunction of the Eastern District of Texas is in place. However, until there is more finality than we have at the moment, reporting companies should at least be prepared to file reports on short notice. Some lawyers are suggesting that reporting companies go ahead and report anyway, given that the rule is technically still in place and only its enforcement is enjoined. We agree that could be a good idea for companies that wish to exercise an abundance of caution to avoid getting caught with too little time to file if the injunction is lifted with little notice, but, at least as of the day this article is published, we expect that most companies will follow the direction of the court in Texas and refrain from filing until further word.
For assistance with preparing and filing your Beneficial Ownership Information Report, contact Harshman Ponist Smith & Rayl, LLC. Our experienced team is here to help you navigate the complexities of beneficial ownership reporting and maintain compliance with all relevant regulations. Feel free to reach out to us with any legal inquiries or for further assistance on this matter.