BOI Reporting, Corporate Case

 

A federal district court in the Eastern District of Texas issued a significant nationwide preliminary injunction, temporarily suspending the enforcement of the Beneficial Ownership Information (BOI) reporting requirements mandated by the Corporate Transparency Act (CTA). This decision, issued in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al., is the first nationwide injunction against the CTA by a federal district court. The ruling offers immediate relief to affected businesses from compliance burdens, but the ultimate fate of the BOI requirements remains uncertain pending appeal and further legal challenges. 

Highlights

• Temporary Reprieve for BOI Reporting: The Texas federal district court issued a nationwide preliminary (temporary) injunction on December 3, 2024, temporarily halting enforcement of the Corporate Transparency Act (CTA) and its associated Beneficial Ownership Information (BOI) Reporting Rule. This is the first nationwide injunction of its kind. While this offers immediate relief, it’s crucial to understand this is a temporary measure.
• Government Appeal Expected: The government is widely expected to appeal this decision and request a stay of the injunction, meaning the temporary halt could be short-lived. This means the situation remains fluid, and compliance could be reinstated.
• Gather Information, Prepare for Action: Because the ultimate outcome is uncertain, Tampa-area businesses that haven’t yet filed their BOI reports should continue gathering necessary information and prepare to file promptly if the injunction is overturned or modified on appeal. Be ready to comply if a stay is granted or the ruling is reversed.
• January 1, 2025 Deadline May Still Apply: If the Fifth Circuit Court of Appeals overturns or limits the injunction, the January 1, 2025, deadline for pre-2024 Reporting Companies to file their initial BOI reports with FinCEN will remain in effect. FinCEN is still accepting reports, and has yet to comment publicly on the district court’s ruling.

Understanding FinCEN and the CTA

FinCEN, the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, plays a central role in combating financial crime and promoting national security. It collects, analyzes, and disseminates financial intelligence to identify and disrupt illicit financial flows, including money laundering and terrorist financing. The Corporate Transparency Act (CTA), passed in 2020 as part of the National Defense Authorization Act, is a key piece of legislation aimed at enhancing transparency within the U.S. financial system. Under the CTA, companies must file Beneficial Ownership Information (BOI) reports electronically with FinCEN, disclosing details about their beneficial owners.

The Core of the Dispute: BOI Reporting

Congress established the BOI reporting requirement as part of the Anti-Money Laundering Act of 2020 (AMLA) to fight money laundering, terrorism financing, and other financial crimes. The AMLA aimed to:

• Improve interagency information sharing.
• Modernize anti-money laundering and counter-terrorism financing laws.
• Promote technological innovation in financial institutions’ anti-money laundering and counter-terrorism financing controls.
• Implement risk-based compliance procedures for financial institutions.
• Increase transparency to combat illicit activity and protect national security.

The CTA’s BOI reporting rule requires “reporting companies”—corporations, limited liability companies, and other similar entities registered to do business in the United States—to submit detailed information about their beneficial owners to FinCEN. Beneficial owners are defined as individuals who directly or indirectly:

1. Exercise substantial control over the company; or
2. Own or control at least 25% of the ownership interests.

The information required includes full legal name, date of birth, address, and a unique identifying number from an acceptable identification document. The reporting obligation is ongoing, requiring updated reports if information changes and corrected reports for any inaccuracies.

Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al.: A Foundation for the Injunction

Six plaintiffs, including one individual and five entities ( initiated a lawsuit challenging the constitutionality of the Corporate Transparency Act (CTA) and its implementing regulations (the “Reporting Rule”). The plaintiffs represent a diverse group of business types, ranging from a family-run Texas corporation selling equipment to first responders, to a Delaware corporation providing IT services, a small Wyoming dairy farm, and a Mississippi political organization. Crucially, none of the individual plaintiffs or the smaller entities had yet filed a beneficial ownership report with FinCEN. The National Federation of Independent Business (NFIB), a tax-exempt organization representing approximately 300,000 members, also joined as a plaintiff, advocating on behalf of its members who would face the reporting obligations. The plaintiffs argued that the CTA violated their rights under the First, Fourth, Ninth, and Tenth Amendments. The AMLA (and the CTA within it) was enacted as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021.

The court rigorously examined whether Congress had the statutory authority to enact the CTA, questioning whether its provisions fell squarely within the powers granted to the federal government under the Commerce Clause or the Necessary and Proper Clause of the U.S. Constitution. Thee court concluded that the CTA primarily compels the creation of a new activity (the continuous reporting of beneficial ownership information rather than merely regulating pre-existing commerce) and therefore doesn’t satisfy the Commerce Clause test. It similarly found that the CTA’s relationship to Congress’s enumerated powers was too weak to be considered “necessary and proper” to fall under the Necessary and Proper Clause. The Court also addressed the plaintiffs’ arguments that the CTA violates the First and Fourth Amendments; however, it found these arguments unnecessary to address given its conclusion that the CTA is unconstitutional under the Tenth Amendment.

The court concluded the CTA is likely unconstitutional, exceeding Congress’s powers under the Tenth Amendment and failing under the Commerce Clause and Necessary and Proper Clause tests, declaring that the other constitutional claims did not need to be addressed at this preliminary stage. As a result, the court granted the preliminary injunction, enjoining the CTA and Reporting Rule nationwide, and also stayed the January 1, 2025, compliance deadline. 

What This Means

The government is expected to appeal the court’s decision and seek a stay of the injunction to prevent the January 1, 2025, deadline from expiring while the appeal is pending. The outcome of this appeal, and any subsequent Supreme Court review, will ultimately determine the future of BOI reporting under the CTA. While the preliminary injunction provides temporary relief, businesses should remain prepared for potential compliance obligations pending the resolution of this important legal challenge. The legal uncertainty underscores the need for businesses to consult legal counsel and carefully track developments in this ongoing case.

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Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, Roussos Law, PLLC., or other competent legal counsel.