On December 3, 2024, a Texas federal court issued a preliminary injunction that halts the beneficial ownership information (“BOI”) reporting requirements of the Corporate Transparency Act (“CTA”). The CTA requires companies to report BOI to the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) or risk severe penalties. Prior to the federal court order, the CTA’s deadline for compliance was January 1, 2025.

In Texas Top Cop Shop, Inc. et al. vs. Garland et al., Case No. 4:24-cv-478 (E.D. Tex.), the court prohibited the federal government from enforcing the CTA and its implementing regulations. The court held that the CTA is likely unconstitutional because it allows the federal government to step outside its Constitutional authority by regulating companies created under state law and seeks to end the anonymity feature of corporate formation, which may have been specifically allowed under state law.

The federal court’s ruling has major implications. Reporting companies no longer need to comply with the CTA’s BOI reporting requirements by January 1, 2025, and no penalties can be enforced by FinCEN against any company for failure to report by the deadline. In addition, companies created in 2024 no longer need to submit an initial BOI report within 90 days of creation.

This decision is just the beginning of what is expected to be a long legal battle. As of now, only a preliminary injunction is in effect, and the federal government will almost assuredly appeal it.

Gust Rosenfeld will continue to monitor the status of this case and any relevant rulings.