Everything You Need to Know About The Texas District Court Decision

Here's everything you need to know about the Texas District Court Decision

December 4, 2024

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA), questioning its constitutionality and its impact on small businesses.

One thing to note…this is not a repeal of the CTA, but a temporary stay of enforcement.

Other legal cases regarding the CTA

On March 1, 2024, the US District Court for the Northern District of Alabama, in NSBU v. Yellen, entered a final declaratory judgment finding the CTA unconstitutional, as exceeding constitutional limits on Congress’s power, and permanently enjoined enforcement of the CTA against the plaintiffs in the case—an individual, a small business trade association and its members.
Two other district courts that have evaluated the constitutionality of the CTA following the decision in NSBU—in Oregon and the Eastern District of Virginia—had determined that the plaintiffs in those cases failed to demonstrate a likelihood of success on the merits of the case (i.e., to demonstrate that the CTA was likely unconstitutional) so as to warrant a preliminary injunction.
A district court in Massachusetts recently dismissed a challenge to the CTA following the parties’ agreement that it did not apply to certain condo associations.

What does this mean?

One question we are asked frequently is, “What happens if I don’t file my BOI Report on time? Will the federal government enforce penalties against me?” This ruling temporarily answers that question. For the time being, the preliminary injunction prevents the federal government from enforcing penalties for companies out of compliance with CTA.

What happens now?

Unlike the Alabama ruling in March, which limited enforcement for only a select group of companies and prompted the Department of Justice (DOJ) to file an appeal within a week, this Texas case has broader implications.

While federal judges can issue injunctions affecting either specific groups or the entire nation, this Texas ruling’s nationwide scope makes a swift DOJ appeal likely—similar to the Alabama case. Appellate courts typically handle such cases promptly, with resolutions coming within weeks or months.

What if I’ve already filed my BOI Report?

Great job! You should have peace of mind knowing that your business is protected.

Should I file my BOI Report?

That’s up to you. FinCEN can’t enforce penalties at this very moment, and you obviously can wait for a resolution on this injunction.

That being said, we are advising small business owners to continue to file their BOI Reports despite this temporary injunction, as the law remains in effect. A preliminary injunction against enforcement of the law does not mean that the law itself was repealed. There’s a possibility that an emergency appeal by the federal government gets approved, and if a business isn’t compliant with the CTA, it could face the associated penalties.

Also, companies formed in 2024 and beyond should particularly consider filing their BOI report, as it’s unclear whether the nationwide preliminary injunction covers them. Filing now—a process that takes less than 10 minutes—may help avoid potential penalties if CTA enforcement resumes.

Please note, this situation is evolving. More information is expected when FinCEN provides an update or files an appeal. As always, we’ll share updates as they become available.

If you have any questions or need assistance with your filings, please don’t hesitate to contact us.