The Corporate Transparency Act (the “CTA”)[1] was found to be unconstitutional by the US. District Court for the Eastern District of Texas. In Texas Top Cop Shop v Garland et al. (case 4:24-cv-00478 December 3, 2024), the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA) and the related Reporting Rule issued by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The Court questioned the CTA’s constitutionality and its impact on small businesses. The CTA, enacted as part of broader anti-money laundering efforts, mandates companies to disclose their beneficial ownership information to a federal database maintained. In granting the plaintiff’s motion for summary judgment, the major deadline set by FinCEN for entities that would have been required to file beneficial ownership reporting at year-end, is now no longer applicable, at least for the time being.
What should firms be doing now?
If you have not already filed the reports required by the Reporting Rule, you no longer need to be concerned with the deadline. We think, however, that it is usually prudent to organize and update your documentation regarding your legal entities, and their beneficial owners, for a number of reasons, including that this ruling could later reversed. It remains to be seen whether the government will appeal, or whether other litigants will seek to challenge the Reporting Rule and CTA. It also remains to be seen whether the Reporting Rule or any other variation of it would continue to have the support of FinCEN after the inauguration of Donald Trump. In theory, his administration, once in place at FinCEN, could take a different approach, and a Republican controlled Congress may or may not act to change the CTA to better meet constitutional standards, if that is ultimately possible. Until then, compliance with the Reporting Rule is not required. Please contact Macaluso LLP if you have any questions.