On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a game-changing nationwide injunction that temporarily halts enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting requirements. Here’s what this means for you, your clients, and the compliance landscape in the weeks ahead.
What Happened? - In the case Texas Top Cop Shop, Inc. v. Garland, the court found the CTA likely unconstitutional. Its key reasoning? Congress overstepped its legislative powers by enacting a law that mandates broad disclosures from companies across the United States. The court ruled that these obligations are not justified under the Constitution’s Commerce Clause or Necessary and Proper Clause, staying all enforcement actions nationwide.
What Does This Mean for Your Clients? For now, businesses are not required to meet the January 1, 2025, reporting deadline. This includes:
- Existing entities previously obligated to file BOI reports.
- Newly formed companies created or registered in 2024.
Additionally, penalties for non-compliance under the CTA are on hold. This reprieve may relieve immediate compliance burdens, especially for small and medium-sized businesses already grappling with increased regulatory complexities.
What’s Next? - The federal government has appealed this decision, with the U.S. Department of Justice taking the case to the Fifth Circuit Court of Appeals. This case could eventually wind up at the Supreme Court. While the injunction is in place, compliance requirements remain suspended. However, if the injunction is overturned, enforcement could resume abruptly.
Implications for Tax Professionals - This ruling places tax professionals in a critical advisory role. Your clients will look to you for clarity amid uncertainty. With the BOI reporting rules temporarily stayed, this is an opportunity to guide them in navigating both immediate relief and potential future obligations.
This nationwide injunction is not the end of the road for the CTA—it’s a pause. As appeals move forward, the legal landscape will likely shift, requiring you to adapt quickly. By staying informed and proactive, you can position yourself as an indispensable partner to your clients in these uncertain times.
We’ll continue to provide updates as the case evolves. For members of CountingWorks Tax Forum we published a white on the issue and provided it as a download immediately after the news broke. That white paper includes a sample client letter. For those that missed that download, the white paper is attached to the end of this syllabus.