Important Corporate Transparency Act Update as of December 4, 2024

Big news on the Corporate Transparency Act!

I’ll give you the summary and then the detailed report:

Summary: TEXAS defeats the FEDS

1. An injunction was made so a pause is being placed on filings for clients wanting to see how this plays out in the courts.
2. You can either still file or wait to see results.
3. This means if you don’t file by the Dec 31, 2024 deadline you can not be penalized at the moment until the courts have come to a ruling.
4. If you do file then you are set either way if the injunction is upheld and no filings are needed or if it is struck down and you are still required to file CTA/BOI.

The Details of the Case

Federal District Court for the Eastern District of Texas, Sherman Division, granted a nationwide injunction stopping the Corporate Transparency Act (“CTA”) in its tracks. The decision is seventy-nine pages long. 

In summary, the Plaintiffs argued that the CTA did this: (1) Intruded upon each state’s right to govern as provided for in the Ninth and Tenth Amendments; (2) the CTA compels speech and burdens Plaintiffs’ right of association under the First Amendment; and (3) the CTA violates the Fourth Amendment by compelling disclosure of private information. 

The language below is copied directly from the Court’s ultimate ruling: 

Having determined that Plaintiffs have carried their burden, the Court GRANTS Plaintiff’s Motion for a Preliminary Injunction. Therefore, the CTA, 31 U.S.C. § 5336 is hereby 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 APA. 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.

Because a preliminary injunction is preliminary, this ruling may change. It all depends on the outcome of the case. That could take a year or more. What may happen is that Congress will work on new or different legislation trying to tackle the same issue (if that is possible). 

What does this mean for you?

The current state of the CTA is that it is enjoined nationwide and compliance with its deadline is stayed. That means the government may not take action against anyone who fails to comply with the deadline until further order of the Court.

Your options are:

1.  hold off on any further filings for entities until this is resolved

2.  you can choose to proceed to file  (If we helped you file, we will be sending out bills for all CTA filings that were created prior to December 4, 2024, but going forward unless we get an additional email from you asking us to file, we can hold off.)

Video Transcription:

Hey everybody, it’s Dugan Kelley with Kelley Clarke. So glad you’re here!

We just had a recent court decision handed down by the Eastern District of Texas, Sherman Division. Judge Mazzant just issued a preliminary injunction on the Corporate Transparency Act on December 3, 2024. This essentially stays the enforceability of the Corporate Transparency Act.

For those of you who own an entity—like a limited liability company, limited partnership, or another type of entity—you’re probably aware of the Corporate Transparency Act, either through your certified public accountant or social media. If you’re in business and acquiring assets through an entity like this, you may know that the Corporate Transparency Act requires you to file and disclose who actually owns the entity and who controls it.

There was a lawsuit brought by Texas Top Cop Shop Inc., et al. against Merrick Garland, the Attorney General of the United States, challenging both the constitutionality and enforceability of the Corporate Transparency Act.

The Lawsuit and Key Arguments

On December 3rd, Judge Mazzant issued an order granting a preliminary injunction, effectively staying the enforceability of the Corporate Transparency Act. The court ruled that the Act intrudes on each state’s rights—not just Texas but every state—as provided for under the Ninth and Tenth Amendments of the U.S. Constitution.

Additionally, the court found that:

• The Corporate Transparency Act compels speech and burdens the plaintiffs’ association under the First Amendment.
• It violates the Fourth Amendment by compelling disclosure of private information that otherwise would not be required to be disclosed.

Judge Mazzant’s Decision

Here’s the key ruling:
The court determined that the plaintiffs met their burden, so it granted their motion for a preliminary injunction. Therefore:

1. The Corporate Transparency Act (31 USC § 5336) is hereby enjoined.
   • (That’s legal jargon meaning it’s not enforceable.)
2. The enforcement of the reporting rule (31 CFR § 1010.380) is also enjoined.

This was the rule requiring you, as an entity owner, to provide information and file it in a timely manner. Additionally, the compliance deadline is stayed under Section 705 of the Administrative Procedure Act (APA).

As of now:

• The January 1, 2025, BOI (Beneficial Ownership Information) reporting deadline is not enforceable.
• Reporting companies do not need to comply with the CTA until further order of the court.

What It Means for Business Owners

If you own an entity that falls under the CTA’s jurisdiction and were not exempt from reporting, your obligation to report is now stayed. In other words, you don’t need to file anything unless the court issues a further order.

Will this be permanent? That remains unknown. The Department of Justice can appeal this decision, and it could go to a higher court—or even the Supreme Court—for a ruling on the constitutionality of the Corporate Transparency Act.

This is hot off the presses as of December 3, 2024.

Schedule a free consultation if you’d like to discuss this further!