On December 3, 2024, the United States District Court for the Eastern District of Texas (“the Court”) issued a nationwide preliminary injunction that prevents the federal government from enforcing the Corporate Transparency Act (“CTA”). As a result—and for the time being—millions of entities across the United States are no longer required to submit beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”) to comply with the January 1, 2025, deadline.
Congress enacted the CTA as part of the Anti-Money Laundering Act of 2020. The CTA mandated the creation of the Beneficial Ownership Secure System (“BOSS”) database and requires entities created by submitting a filing with a Secretary of State (or comparable governing body) that fail to qualify for a codified exemption (“Reporting Companies”) to disclose information regarding the beneficial ownership of the company. The CTA is estimated to affect over 32 million entities.
You can find more information on the CTA, including who is impacted, the reporting requirements, applicable exemptions and general compliance considerations here.
Overview
In challenging the constitutionality of the CTA, a group of six plaintiffs claimed that (i) the CTA interferes with states’ rights under the Ninth and Tenth Amendments; (ii) the CTA compels speech and presents a burden to plaintiffs’ right of association under the First Amendment; and (iii) the CTA violates the Fourth Amendment by compelling the disclosure of private information.
In granting the preliminary injunction, United States District Judge Amos L. Mazzant found that the plaintiffs were likely to succeed on the merits of their claims and stated, “[e]ven in the face of deference the Court must give Congress, the CTA appears likely unconstitutional.” This order does not mean that the Court found the CTA to be unconstitutional, but rather that it believes the plaintiffs have a strong argument and are primed to continue their legal challenge against the legislation. It is important to note that the preliminary injunction is just that—preliminary. While enforcement of the legislation is currently paused, the Court’s order can still be overturned on appeal, or the CTA could ultimately be upheld once the parties are able to complete litigation.
Interestingly, the plaintiffs did not specifically request that the Court issue a nationwide injunction. However, one of the plaintiffs, the National Federation of Independent Business (“NFIB”), brought suit on behalf of itself and its approximately 300,000 members throughout the United States and the Court, based on the scale and geographic presence of NFIB and its members, found a nationwide injunction to be the appropriate remedy.
Practical Takeaways
- Based on the Court’s decision, Reporting Companies are no longer required to submit beneficial ownership reports prior to the January 1, 2025, deadline.
- It is currently unclear how the government will respond and FinCEN has yet to issue a statement following the decision. We expect that the government is likely to appeal the decision to the United States Court of Appeals for the Fifth Circuit.
- The Court did not rule on the Constitutionality of the CTA. However, the Court did indicate that the government’s position is unfavorable moving forward. The Court stated that “[d]espite attempting to reconcile the CTA with the Constitution at every turn, the government is unable to provide the Court with any tenable theory that the CTA falls within Congress’s power.”
- From a timing perspective, it is unclear when a final decision will be issued on the Constitutionality of the CTA. Therefore, we still recommend that Reporting Companies prepare to complete beneficial ownership filings should the decision be overturned or the government ultimately prevail on the merits.
- If the decision were to be overturned, we expect that there will be a reasonable notice period before any new filing deadlines would apply under the CTA; however, Reporting Companies should be prepared to respond quickly to any newly implemented filing deadlines.
Next Steps
As this matter progresses, Hall Render will continue to monitor the situation and the reporting obligations for health care entities. In the interim, we strongly suggest that Reporting Companies prepare to complete beneficial ownership filings should the decision be overturned.
If you have any questions about this topic or would like additional information, please contact:
- John Bowen at jbowen@hallrender.com or (317) 429-3629;
- Matthew Schappa at mschappa@hallrender.com or (317) 429-3604;
- Eric Speer at espeer@hallrender.com or (317) 741-0661;
- Bennett Murphy at bmurphy@hallrender.com or (317) 429-3618; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
