Court Injunction of Beneficial Owner Reporting

On December 3, 2024, the United States District Court of the Eastern District of Texas placed a preliminary nationwide injunction on beneficial owner reporting (Texas Top Cop Shop Inc. v. Garland, No. 4-24-cv-00478).

The Corporate Transparency Act requires many business entities to report information about their beneficial owners in a brand-new government database. Search our tax news archive for “beneficial owner” to see our numerous earlier posts on this topic.

Under the law, registration reports for entities that existed prior to January 1, 2024, are due by January 1, 2025. For entities that were created on or after January 1, 2024, the due date is much sooner, as discussed in our post on December 5, 2023.

In light of this injunction, business entities that have already filed their beneficial owner reports do not need to take any action at this time. However, business entities that have not yet filed their reports face a changed and uncertain landscape.

The federal government, which is the defendant in this case, will likely appeal the current injunction. Even after such appeals of the injunction, the issue of whether or not the reporting requirement is constitutional still needs to be decided, and the outcome is unpredictable.

Other district courts (different from the one that ordered the injunction on December 3) have recently refused to grant injunctions on beneficial owner reporting, so courts in different circuits could come to different verdicts on the constitutionality of the reporting requirement. Any decision will almost certainly be appealed, and such appeals will likely lead to the case being heard by the U.S. Supreme Court. The final outcome of this litigation is unknown.

Due to this injunction, while it appears unlikely that the Financial Crimes Enforcement Network (FinCEN) would impose penalties for failing to file reports as of January 1, 2025, there still remains a possibility that penalties will apply in the future, depending on the results of the litigation. The law imposes substantial penalties ($591 per day, plus criminal penalties) for failing to file.

Practitioners should advise their clients about the uncertainty surrounding this requirement. If a client decides not to file the beneficial owner report by the original due date, practitioners should warn that it is presently unknown when/if penalties will apply. As a result of this uncertainty, clients who do not file are taking the risk of possible penalties.

Our seminars in December and January will discuss strategies in dealing with the Corporate Transparency Act, in light of this new court decision.

Are you registered for one of our upcoming seminars in December and January? If you are not already registered, register here so you’ll be fully prepared!