On December 3, the U.S. district court for the Eastern District of Texas found the Corporate Transparency Act’s (CTA) reporting requirements “likely unconstitutional” and issued a preliminary injunction that halted Beneficial Owner Information Report (BOIR) filing for the parties involved. FinCEN temporarily suspended the BOIR filing requirements for all businesses in response to the injunction; however, on December 23, the US Court of Appeals for the Fifth Circuit lifted the injunction, once again requiring businesses to file BOIRs with FinCEN.
Legal Background
In Texas Top Cop Shop, Inc. v. Garland, the six plaintiffs challenged the CTA under the 9th, 10th, 1st, and 4th amendments. The court analyzed the 10th amendment challenge, relating to the rights of states, and found that this argument had a “substantial likelihood of success.” The court granted a preliminary injunction without specifically addressing the remaining claims of unconstitutionality. The government filed a motion for a temporary stay of the district court’s order and injunction pending appeal.
Current Landscape
The appellate court stated the government “made a strong showing that it is likely to succeed on the merits in defending [the] CTA’s constitutionality,” citing the broad authority granted under the Commerce Clause of the Constitution and the CTA’s self-imposed limitations to only regulate entities engaged in commercial activity with the purpose of preventing serious financial crimes. Additionally, the court found the “public’s urgent interest in combatting financial crime and protecting our country’s national security” outweighed the interests of the businesses involved.
Importantly, the ultimate question of the CTA’s constitutionality still has not been decided. The court’s decision here, although suggestive of a possible future outcome, only lifts the injunction granted by the district court. The court did, however, expedite the government’s appeal to the next available oral argument period.
Effects for Your Company
FinCEN immediately responded to the court’s decision, extending the BOIR filing deadline to January 13, 2025, for most entities, with exceptions for businesses affected by natural disasters. FinCEN also emphasized previous court cases where other U.S. district courts ultimately found the CTA constitutional. Read more about the Texas Top Cop Shop plaintiffs’ argument here.
Sources
https://www.fincen.gov/boi (See “Alert: Updates to Beneficial Ownership Information Reporting Deadlines – Beneficial Ownership Information Reporting Requirements Now in Effect, with Deadline Extensions”)
https://www.ca5.uscourts.gov/opinions/unpub/24/24-40792.0.pdf
https://biltgroup.net/breaking-news-corporate-transparency-act-ruled-unconstitutional/