Enforcement of Corporate Transparency Act Enjoined & Beneficial Ownership Information Requirement Stayed

On December 3, 2024, the Honorable U.S. District Judge Amos L. Mazzant of the Eastern District of Texas, Sherman Division, ruled on a Preliminary Injunction in Civil Action No. 4:24-CV-478. The underlying case, brough by numerous plaintiffs, seeks to invalidate the Corporate Transparency Act (the “CTA”) and the requirement for Reporting Companies to report Beneficial Owners (the “Reporting Rule”) to the Financial Crimes Enforcement Network based on various constitutional claims. Judge Mazzant granted plaintiff’s preliminary injunction blocking the filing requirement and its deadline for entities required to file no later than January 1, 2025.

In granting plaintiffs’ request for a Preliminary Injunction, Judge Mazzant ruled that the “CTA is likely unconstitutional as outside of Congress’s power” and the “Reporting Rule….is likely unconstitutional for the same reasons.” Based on Judge Mazzant’s granting of the injunction, the government cannot enforce the CTA or Reporting Rule and the requirement to report Beneficial Owners of Reporting Companies that existed prior to January 1, 2024, by January 1, 2025, is stayed pending ultimate adjudication on the merits of the case¹. The injunction and stay apply nationwide.

We do not know when this case will ultimately be decided, and once decided if it will be appealed, but for now, we recommend not to make any Beneficial Owner filings with FinCEN. If a court lifts the stay or decides that the CTA and Reporting Rule may be enforced, there is likely to be an extended compliance period during which necessary filings could be made. We will continue to make you aware of impactful decisions and deadlines as the situation evolves.

For those of you who have already complied with the Reporting Rule, it is unclear what will happen to the information you provided to FinCEN. Whether FinCEN will be required to delete your data is unlikely to be resolved until the case above, and other related cases, is finally decided on the merits and in higher courts upon appeal.

Should you have any questions, please do not hesitate to call Joseph Mannarino, Esq. at (212) 244-2585 or Barry Posner, Esq. at (212) 868-0174.

₁ Although a stay of the reporting requirement for Reporting Companies formed during 2024 is not specifically mentioned in Judge Mazzant’s order, his enjoining the government from enforcing the CTA or Reporting Rule means that such companies cannot be penalized for not filing Beneficial Owner Reports within 90 days of formation while the injunction is in place.