Eastern District of Texas Blocks Enforcement of the Corporate Transparency Act

On Tuesday, in Texas Top Cop Shop v. Garland (Case No. 4:24-CV-478; E.D. Tex.; 12/3/24), the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the U.S. Department of Treasury (Treasury) and the Financial Crimes Enforcement Network (FinCEN) from enforcing the Corporate Transparency Act, including the beneficial ownership information reporting rules promulgated thereunder (the CTA). The court held that the CTA is likely unconstitutional and stayed the compliance deadline for filing initial beneficial ownership information reports (BOIRs) for entities formed before January 1, 2024, which had been set as January 1, 2025.

Earlier this year, the U.S. District Court for the Northern District of Alabama declared that the CTA is unconstitutional and enjoined its enforcement. See National Small Business United v. Yellen (Case No. 5:22-cv-1448-LCB, N.D. Ala.; 3/24). However, the court order in the Alabama case applied only to the specific plaintiffs in that litigation, while the Texas court order applies to all entities on a nationwide basis. Treasury’s appeal of the Alabama decision is currently pending in the U.S. Court of Appeals for the Eleventh Circuit.

Although we do not yet know what action Treasury and FinCEN will take in response to the Texas decision, the government is likely to appeal. Accordingly, the injunction could be overturned, reinstating the CTA, which could include the original filing deadlines. It is also possible that the government may seek to stay the injunction pending appeal, meaning that the injunction could be suspended while the appeal is being considered.

If you have not yet completed your BOIR filings, you should consider these possibilities before deciding what next steps to take.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.