Background

The Corporate Transparency Act (CTA) and the reporting rule issued by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) pursuant to the CTA (Reporting Rule) requires legal entities created in or registered to do business in the United States, that do not qualify for one of 23 exemptions set forth in the Reporting Rule, to report beneficial ownership information (BOI) before Wednesday, January 1, 2025. Failure to timely file, amend or correct a BOI report with FinCEN subjects the reporting company and its beneficial owners to potential civil, and in some cases criminal, penalties from FinCEN.

Unexpected Ruling

On December 3, 2024, U.S. District Judge Amos Mazzant of the United States District Court, Eastern District of Texas, issued a preliminary injunction stating that “. . . the CTA, 31 U.S.C. § 5336 is enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the [Administrative Procedures Act].  Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
Furthermore, the Court determined that the CTA and the Reporting Rule are likely unconstitutional for purposes of a preliminary injunction. Judge Mazzant stated that he has not yet made “an affirmative finding that the CTA and the Reporting Rule are contrary to law or that they amount to a violation of the Constitution.” On this basis, he determined that FinCEN should be enjoined from enforcing the Reporting Rule and that the January 1, 2025 reporting deadline (Reporting Deadline) should be stayed.

What’s Next?

The key questions are (1) whether the U.S. Department of Justice (DOJ) will appeal the preliminary injunction to the U.S. Fifth Circuit Court of Appeals (Fifth Circuit) and ask the appeal court to stay the preliminary injunction and (2) will the Fifth Circuit act before the Reporting Deadline. Most commentators expect that the DOJ will appeal the preliminary injunction. It is also expected that FinCEN will issue a position statement related to Judge Mazzant’s ruling (as they did in the Alabama District Court’s ruling in March of this year) in the next few days.

Our Recommendation

In anticipation of a position statement by FinCEN, we are recommending that our clients continue their preparation for filing of a report, where applicable, in compliance with the Reporting Rule, but hold on making any filings of reports.  We will monitor the anticipated publication of a statement, order or interim rule from FinCEN addressing in some fashion Judge Mazzant’s preliminary injunction.  Once this publication has been made and clarity as to how FinCEN will address the preliminary injunction occurs, decisions can be made with respect to filing any required reports and the timing of such filings.