Transparency on Hold: FinCEN confirms a halt to Corporate Transparency Act reporting (for now)

The wait is finally over, as this past weekend, FinCEN published an alert to its website stating that non-exempt reporting companies are not required to file beneficial ownership information with FinCEN, and will not face any liability for failing to do so, while the preliminary injunction is in place (FinCEN’s Statement).

Background

On December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al.,¹  the U.S. District Court for the Eastern District of Texas (the District Court) granted a nationwide preliminary injunction enjoining enforcement of the CTA and staying all of its reporting deadlines pending further judicial order. In its opinion, the District Court concluded that there is a substantial likelihood the CTA will be held unconstitutional as outside of Congress’s authority under both the Commerce Clause and the Necessary and Proper Clause, reasoning that it represents a drastic departure from the historical regulation of business entities that has traditionally been reserved to the states.² On that basis, the District Court held that a preliminary injunction was necessary to prevent irreparable harm until a final decision on the merits can be rendered.

The Department of Justice, on behalf of FinCEN (a bureau of the U.S. Department of the Treasury), quickly filed a Notice of Appeal with the U.S. Court of Appeals for the Fifth Circuit, challenging the District Court’s order.  FinCEN’s Statement follows this Notice of Appeal, and confirms that FinCEN “will comply with the order issued by the District Court … for as long as it remains in effect,” and acknowledges that “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.” Nevertheless, FinCEN’s Statement notes that reporting companies may continue to voluntarily file beneficial ownership information reports while its appeal is pending.

Other judicial action

The District Court’s decision follows several other constitutional challenges to the CTA in recent months, including National Small Business United, et al. v. Yellen, et el.,³ which is currently on appeal before the U.S. Court of Appeals for the Eleventh Circuit, where the U.S. District Court for the Northern District of Alabama held the CTA unconstitutional because it “exceeds the U.S. Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”⁴ Unlike the Northern District of Alabama’s decision, which enjoined the government from enforcing the CTA against the specific plaintiffs in that case, the District Court’s order is effective nationwide and instructs approximately 32.6 million existing reporting companies (and any reporting companies hereafter formed) that they need not comply with the CTA or its reporting deadlines pending further order of the District Court. 

There have also been additional challenges to the CTA raised in other jurisdictions, including in Firestone, et al. v. Yellen, et al.,⁵ where the U.S. District Court for the District of Oregon denied the plaintiffs’ request for a preliminary injunction, finding that they were unlikely to prevail on their claims that the CTA is unconstitutional.

Next steps for reporting companies

Given the various pending challenges to the CTA, the preliminary nature of the District Court’s injunction, and the fact that FinCEN’s statement did not address whether or how FinCEN plans to toll or extend the CTA’s reporting deadlines in the event the District Court’s order is reversed, or what would happen to beneficial ownership information already reported to FinCEN if the order is upheld, reporting companies should continue to pay close attention to further FinCEN guidance and developments in the various pending cases, which we are actively monitoring and for which we will continue to publish updates. It would also be prudent for reporting companies to remain prepared to file their beneficial ownership information reports given the potential that the CTA’s reporting requirements, and their corresponding deadlines, may be quickly reinstated if the preliminary injunction is lifted.

Finally, it is important to note that while the status of the CTA remains in flux, state analogues to the federal CTA are not affected by the District Court’s or the Northern District of Alabama’s orders.  For example, the New York Limited Liability Company Transparency Act, which becomes effective January 1, 2026, and imposes similar reporting requirements on limited liability companies formed or registered to do business in New York, is not stayed or otherwise modified by such orders.

Footnotes

1. Docket No. 4:24-cv-00478 (E.D. Tex. Dec. 3, 2024).

2. Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478, slip op. at 34 (E.D. Tex. Dec. 3, 2024).

3. Docket No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024).

4. National Small Business United v. Yellen, No. 5:22-cv-1448, slip op. at 2 (N.D. Ala. Mar. 1, 2024).

5. Docket No. 3:24-cv-01034 (D. Ore. Sept. 20, 2024).