On December 3, 2024, in Texas Top Cop Shop, Inc., et al., v. Merrick Garland, Attorney General of the United States, et al., the U.S. District Court for the Eastern District of Texas enjoined enforcement of the Corporate Transparency Act (CTA) and its implementing regulations, and stayed the January 1, 2025 reporting deadline for reporting companies formed before 2024.
The court’s order bars enforcement of the CTA nationwide, until further notice from the court, or unless or until a higher court reverses. For now, reporting companies would not be subject to enforcement actions if they failed to file BOI reports under the CTA.
What should reporting companies do next?
- Delay Reporting? Although the CTA is still law “on the books,” the court’s order enjoins the federal government from enforcing the law, until further notice from the court, or unless or until the order is reversed by a higher court. Reporting companies that have not yet filed initial beneficial ownership information (BOI) reports might decide to hold off on submitting the BOI reports for now, and wait for a higher court to issue a final order on the constitutionality of the CTA. (But see #4 below.)
- Keep Apprised of Any Updates. The court ‘s order is an initial ruling in what may be a lengthy appeals process, as the federal government might appeal the court’s ruling to the U.S. Court of Appeals for the Fifth Circuit. In addition, in National Small Business United v. Yellen, the U.S. Court of Appeals for the Eleventh Circuit is currently considering similar issues in an appeal from a decision from a federal district court in Alabama, which concluded that the CTA was unconstitutional. Reporting companies would be well advised to stay apprised of these cases as they work their way through the appeals process.
- Reporting Companies Created Before 2024 May Consider Gathering Information for BOI Reports, in Case of a Reversal. If the court’s order is reversed by a higher court, the stay of the January 1, 2025 filing deadline for reporting companies formed before 2024 would be lifted, and those reporting companies might have a limited window to file after the reversal. Thus, reporting companies created before 2024 might consider gathering information necessary for BOI reports, so they are ready to file if a higher court reverses.
- Reporting Companies Created in 2024 or Beyond May Consider Filing BOI Reports, in Case of a Reversal. Although the court’s order enjoined enforcement of CTA, it did not specifically stay the filing deadline for reporting companies created in 2024 (90 days after formation) or 2025 or beyond (30 days after formation). While the court’s injunction is in place, the government could not prosecute a reporting company for failing to meet the deadline. However, if the injunction is lifted by a higher court, it is not clear whether these deadlines would revert back to their current terms, or be abated until sometime after the reversal. Reporting companies created in 2024 or beyond might consider filing an initial BOI report under the current deadlines, in case the injunction order is lifted in a higher court’s reversal.
- Consult with Legal Counsel. Reporting companies would be well advised to consult with their attorneys to determine next steps in light of the court’s order.
