Texas court issues Corporate Transparency Act injunction
UPDATE 12/9/2024: FinCEN has stated that in light of the federal court order issued by the U.S. District Court for the Eastern District of Texas, 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.
On December 3, a U.S. District Court judge issued a preliminary injunction to prevent the government’s enforcement of the beneficial ownership interest (BOI) reporting requirements of the Corporate Transparency Act (CTA).
In Texas Top Cop Shop, Inc. Et Al. v. Garland, Judge Mazzant of the Eastern District of Texas ruled that the CTA is likely unconstitutional and outside powers granted to Congress and that a nationwide injunction should apply.
The plaintiffs in the case were five businesses and the National Federation of Independent Business (NFIB). The NFIB has approximately 300,000 members nationwide. An injunction was requested on behalf of the plaintiffs and all members of the NFIB. At the proceedings, the government argued that an injunction on behalf of the NFIB members would, “in practical effect, enter a nationwide injunction.”
The judge’s decision states that reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the court.
This decision now leaves reporting companies with conflicting court cases regarding the constitutionality of the CTA — some in favor of the taxpayer, and some in favor of the government. The government has 30 days to appeal the decision, which means you may not know if it will be appealed until after the January 1, 2025, reporting due date.
Reporting companies that have not yet filed BOI reports will have to decide if they want to file by January 1, 2025, or rely on the court’s purported nationwide injunction, thereby risking penalties.
BOI reminder
In 2021, Congress passed the Anti-Money Laundering Act. Included in that act was the Corporate Transparency Act, which imposes reporting requirements for certain domestic and foreign companies. “Reporting companies” that were registered to do business before January 1, 2024, may need to file an annual report disclosing beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Further, reporting companies that were registered to do business on or after January 1, 2024, may be required to file an initial BOI report within 90 days of formation or registration.
You may review the FinCEN website athttps://www.fincen.gov/boi for an FAQ page and other useful information.
How Wipfli can help
If your organization may be impacted by this injunction, or you’re uncertain how to best proceed, Wipfli can help. Our team of dedicated tax professionals are closely monitoring this evolving situation and are ready to help. Contact us today to learn more.
