With a looming deadline of December 31, 2024, for beneficial ownership reports to be filed with the Financial Crimes Enforcement Network (FinCEN), hundreds of thousands of companies are feeling the pressure to ensure they comply with regulations in the Corporate Transparency Act (CTA).
However, a Texas federal court has given filers some potential reprieve. On December 3, 2024, the Texas court preliminarily blocked enforcement of the Corporate Transparency Act and its regulations nationwide. Stating, as seen in similar cases throughout the country, that the CTA exceeds Congress’s commerce authority in that this authority cannot be used to compel the disclosure of information for law enforcement purposes. It should be noted that at least one district court has upheld the constitutionality of the CTA.
Previous decisions challenging the constitutionality of the CTA have been limited solely to the plaintiffs in these cases. This is the first instance of a decision of this kind being extended outside of the class of plaintiffs and applied nationwide.
Per the court’s decision, unless and until a higher court reverses the order, reporting companies do not need to comply with the reporting requirement and upcoming filing deadline. That said, there is no guarantee that the decision will be upheld on appeal. Given the lack of certainty, and the fact that one other court has upheld the constitutionality of the CTA, we recommend that clients continue to file the required reports by the December 31, 2024, deadline.
Attorneys at Barclay Damon will continue to monitor the judicial landscape and the evolution of this decision.
If you have any questions regarding the content of this alert, please contact Jim Canfield or Mike Moore, Corporate Practice Area co-chairs, at jcanfield@barclaydamon.com and mmoore@barclaydamon.com; Danielle Katz, counsel, at dkatz@barclaydamon.com; Karina Shahine, associate, at kshahine@barclaydamon.com; or another member of the firm’s Corporate Practice Area.