This past Tuesday, December 3, 2024, the United States District Court for the Eastern District of Texas issued a nationwide injunction precluding the federal government from enforcing the Corporate Transparency Act (“CTA”). What does this mean for your business in light of the looming December 31, 2024, deadline?
Under the CTA, which went into effect on January 1, 2024, many business owners are required to file beneficial ownership information reports (“BOI reports”) with the U.S. Department of the Treasury. The deadline for filing these BOI reports is December 31, 2024. 31 C.F.R. § 1010.380(a)(1)(iii). Those who fail to file by this deadline could face up to two years of imprisonment and fines of up to $10,000. 31 U.S.C. § 5336(h)(1).
The CTA directs the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to establish and maintain a national registry of beneficial owners of entities deemed “reporting companies.” Congress’s intent is to uncover bad actors that seek to conceal their illicit activities—such as money laundering and human and drug trafficking—through shell companies. In short, the CTA is a nationwide crackdown on money laundering.
However, the CTA has faced constitutional challenges before. For example, a federal court in Alabama previously held the CTA unconstitutional, ruling that it exceeded Congress’s Article I authority to “regulate Commerce with foreign Nations, and among the several States.” National Small Business United v. Yellen, 721 F. Supp. 3d 1260, 1278 (N.D. Ala. 2004) (“The plain text of the CTA does not regulate the channels and instrumentalities of commerce, let alone commercial or economic activity. The CTA applies to ‘reporting companies’…”).
With less than 30 days before the CTA deadline, Judge Amos L. Mazzant of the Eastern District of Texas granted an injunction against the CTA and its regulations, halting enforcement of the December 31, 2024, filing deadline.
Judge Mazzant found that the CTA both “represents a Federal attempt to monitor companies created under state law”—a matter he contended should be left to the States—and “ends a feature of corporate formation as designed by various States—anonymity.” Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 4953814, at *1 (E.D. Tex. Dec. 3, 2024). Additionally, Judge Mazzant agreed with the Northern District of Alabama’s reasoning in National Small Business United v. Yellen, finding that the CTA exceeds Congress’s authority to regulate commerce. Id. at *19.
For these reasons, he determined that a “nationwide injunction is appropriate in this case.” Id. at *35. Judge Mazzant emphasized that the injunction will not hinder further judicial debate on the CTA’s constitutionality and will shield beneficial owners from severe penalties in the meantime. Id. at *36. As a result, the United States District Court for the Eastern District of Texas has ruled that businesses nationwide need not comply with the CTA or file BOI reports by the December 31, 2024, deadline—at least for now. Id. at *37.
This case is ongoing, and the status of the injunction and the CTA could still change. The business litigation lawyers at Plakas Mannos are closely monitoring developments regarding the CTA. In the meantime, we continue to advise clients to prepare and file BOI reports prior to the December 31, 2024, deadline to avoid potential legal penalties.
Although the CTA’s constitutionality is under judicial review, the risk of missing the December 31, 2024, deadline is significant. We strongly recommend erring on the side of caution. If you have questions about the CTA, the injunction, or the upcoming deadline, don’t hesitate to reach out to one of our business litigation attorneys near Akron or Canton today.
Tyler Speer recently joined us as an associate attorney and has worked in various practice areas with Plakas Mannos, including personal injury, wrongful death, commercial litigation, corporate transactions and regulatory compliance, employment and workers’ compensation, and industrial injuries.