Regular readers of our blog are aware of ongoing litigation concerning the Corporate Transparency Act (“CTA”), a new federal law we first wrote about here[1], which would require community associations (and other companies) to report information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Dept. of Treasury. The CTA had imposed a deadline of December 31, 2024 for the filing of Beneficial Owner Information Reports for companies that already existed before the effective date of January 1, 2024. However, a recent federal court decision has suspended, nationwide, the requirement for businesses to disclose beneficial ownership information.
On December 3, 2024, in a bold and well-written opinion, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction enjoining enforcement of the CTA and the corresponding Reporting Rule and staying the compliance deadline.
The order held that neither may be enforced and reporting companies need not comply with the CTA’s December 31, 2024 BOI reporting deadline, pending further order of the Court.[2] This means the requirements are lifted for all companies nationwide, at least for now.
The plaintiffs in this Texas case argued that the CTA is unconstitutional for intruding upon States’ rights under the Ninth and Tenth Amendments; compelling speech and burdening the plaintiffs’ rights of association under the First Amendment; and compelling disclosure of private information in violation of the Fourth Amendment. The Court reasoned that a nationwide injunction against enforcement of the CTA and Reporting Rule was appropriate as both the CTA and the Reporting Rule apply nationwide, membership in one of the plaintiff entities of the lawsuit extended across the country, and the extent of the constitutional violation shown by the plaintiffs in the action is best served through a nationwide injunction. While this does not mean that the Court will ultimately rule with the plaintiffs in this action, the issuance of a preliminary injunction is indicative of what the Court finds to be a likelihood of success on the merits.
Some of the constitutional arguments raised in the Texas case are similar to those made by Community Associations Institute (“CAI”) against the U.S. Dept. of Treasury in seeking exemption for community associations from the CTA.[3] We previously wrote about CAI’s lawsuit here.[4] Since our prior article, the U.S. District Court for the Eastern District of Virginia denied CAI’s motion for a preliminary injunction to prevent enforcement of the CTA against community associations. However, it is important to note that a preliminary injunction simply serves to preserve a status quo prior to a final judgment; CAI’s lawsuit is still ongoing, and the denial of their motion for a preliminary injunction does not mean that they will ultimately be unsuccessful in their lawsuit. In any event, the CTA’s enforcement and the reporting requirements are, at least currently, suspended nationwide due to the ruling in the Texas case.
Now that there is a nationwide stay on the reporting deadline, where does that leave community associations?
It is vital to note that a preliminary injunction simply serves to enjoin enforcement of the CTA to preserve the status quo during litigation until the matter can be finally adjudicated. Therefore, there remains the possibility that the Court could eventually rule against the plaintiffs in the Texas case in its final adjudication of the lawsuit. Also, while we believe it’s inevitable, we do not know with certainty whether or when the government will appeal the preliminary injunction. An appeal would go to the US Court of Appeals for the Fifth Circuit. If the preliminary injunction were to be reversed on appeal, it is unclear whether the December 31, 2024 deadline would be extended, how long reporting companies would have to comply with the CTA reporting requirements, or what, if any, consequences there would be for not filing by December 31, 2024. We believe a community association taking shelter under this Texas order would not be penalized if the order is overturned. But, due to this uncertainty, a community association board may decide to voluntarily file their beneficial ownership information ahead of the December 31, 2024 deadline, in an abundance of caution.
Should your board determine to file their beneficial ownership information despite the currently existing preliminary injunction, or if preliminary injunction is lifted, our firm remains prepared to file your beneficial ownership information with FinCEN. You can visit this link to provide your reporting information over a secure platform.
Needless to say, our firm will continue to closely monitor the status of the recent nationwide preliminary injunction as well as the numerous other legal challenges to the CTA. We will continue to update our blog accordingly. Our attorneys at McCabe, Trotter & Beverly, P.C. are well-equipped and prepared to answer any other questions you may have regarding the recent injunction and other developments. Please contact us at (803) 724-5000 for further information.
McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C., and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
Valerie Garcia Giovanoli
[1] https://mccabetrotter.com/new-year-new-federal-reporting-requirements-hoas-and-the-corporate-transparency-act/
[2] Texas Top Cop Shop, Inc. et al. v. Merrick Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.).
[3] https://advocacy.caionline.org/corporate-transparency-act-blocked-nationwide-by-texas-federal-judge/
[4] https://mccabetrotter.com/corporate-transparency-act-litigation-update-and-reporting-assistance/