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Hurry Up, STOP. . .Has CTA Been Struck Down By Courts?

Client Alert
December 5, 2024

On December 3, 2024, Judge Mazzant of the U.S. District Court for the Eastern District of Texas, Sherman Division, enjoined the Federal Government from enforcing the Corporate Transparency Act (CTA). To date, the case, Texas Top Cop Shop, Inc., et al v. Garland et al, No. 4:2024cv00478 - Document 30 (E.D. Tex. 2024), has garnered a lot of buzz.

Background
Following the passage of the CTA and effective January 1, 2024, many companies in the U.S. were slated to report information about their “beneficial owners” (individuals who ultimately own or control a company) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury (Treasury). These reports are referred to as “BOI reports”. Under the CTA there are severe penalties for not timely and accurately filing the required BOI reports. As the December 31, 2024, initial filing deadline neared, attorneys, accountants and other advisors have been advising clients to get the filings completed.

Analysis
In Texas Top Cop, one private individual and five entities, including the aforementioned Texas Top Cop (a family-run, Texas corporation selling equipment to first responders), sought to enjoin the Federal Government from enforcing the CTA and its Implementing Regulations. It filed its lawsuit on May 28, 2024, seeking a declaratory judgment that the CTA is unconstitutional and an injunction against its enforcement. On October 9, 2024, the Court heard arguments from both the plaintiffs and defendants. In ruling for Texas Top Cop, the court agreed that the CTA intrudes upon States’ rights under the Ninth and Tenth Amendments, and is likely [emphasis added] outside of Congress’s power. What the court did not due was address whether the CTA compels speech and burdens the right of association under the First Amendment, and the CTA violates the Fourth Amendment by compelling disclosure of private information.

Fallout
Following Texas Top Cop, uncertainty has arisen regarding whether clients should file their BOI reports. After all, the Federal Government is enjoined from enforcing the CTA, right?

The answer depends.

Previously, on March 1, 2024, in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. 2024), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoined Treasury and FinCEN from enforcing the CTA. The difference between National Small Business United and Texas Top Cop is that National Small Business United applied solely to the plaintiffs who filed the case, while Texas Top Cop Shop applies to all.

In other cases outside of Texas, courts have declined to issue a nationwide injunction. See Small Business Association of Michigan et. al. v. Yellen et. al., No. 1:2024cv00314 (W.D. Mich. Apr. 26, 2024) (Michigan U.S. District Judge denies preliminary injunction of the CTA); Firestone v. Yellen, No. 3:24-cv-01034 (D. Or. June. 26, 2024) (Oregon U.S. District Judge declines to enjoin enforcement of the CTA); and Community Associations Institute v. Yellen, No. 1:24-cv-1597 (E.D. Va. Oct. 24, 2024) (Virginia U.S. District Judge denies preliminary injunction of the CTA).

What to do now?
After National Small Business United, the FinCEN website posted an alert reiterating that the final declaratory judgment only applied to the particular individuals and entities subject to the Northern District of Alabama’s injunction. It stressed that “reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.” It will be interesting to see whether the FinCEN website will be updated in the coming days to address the Texas Top Cop injunction.

Regardless, enforcement of the CTA has been enjoined at least temporarily by the Texas Top Cop Shop case. While the federal government is likely to appeal the Texas decision, the changes in leadership at the Department of Justice resulting from the incoming Trump administration leaves the long-term status of the CTA uncertain.

To navigate this uncertain landscape, business owners are encouraged to consult with their BMD legal advisers or BMD Member Blake Gerney at brgerney@bmdllc.com.

CTACorporate Transparency ActFinCEN
Client Alert

Changes to FFCRA Paid Leave: Congress’ Revisions to Employment COVID-19 Leave Benefits Signals the Light is at the End of the Tunnel

December 28, 2020Late in the evening on December 27th, President Trump signed into law the government’s $900 billion COVID-19 relief package (the “Stimulus Bill”). Among other economic stimulus benefits, the Stimulus Bill contains the $600 stimulus checks that will be issued to eligible individuals as well as, relevantly, changes to the Families First Coronavirus Response Act (“FFCRA”). The FFCRA was implemented in April 2020 and provided benefits to individuals who missed work as a result of an actual or suspected COVID-19 illness or to care for a child when their school or childcare service was closed because of COVID-19. Importantly, the Stimulus Bill extends eligibility for employer payroll tax refunds for leave payments made to employees on or before March 31, 2021 under the FFCRA, signaling to the American people that Congress believes many of the employed public will be vaccinated by this time, the light at the end of the tunnel. However, the Stimulus Bill does contain a caveat that employers are no longer required to provide FFCRA leave benefits after December 31, 2020, but if they do, they will receive the payroll tax credits, up to the maximums provided in the FFCRA, for payments made prior to April 1, 2021. Below we provide a list of questions and answers we received to date following the passage of the Stimulus Bill. We expect the U.S. Department of Labor (“DOL”) to issue additional questions and answers as the Stimulus Bill is implemented, and we will update this Client Alert as these are received.Client Alert

Healthcare Speaker Programs: New OIG Alert

December 11, 2020In a rare Special Fraud Alert issued on November 16, 2020 (the “Alert”), the Office of Inspector General (“OIG”) urged companies who host speaker programs to reassess their programs in light of the “inherent risks” associated with these activities. The Alert reports that, in the last three years, drug and device companies have reported paying nearly $2 billion to health care professionals for speaker-related services.Client Alert

Value-Based Care Advances – CMS Issues New Final Rules for Stark and Anti-Kickback Statutes

December 11, 2020The Centers for Medicare & Medicaid Services (“CMS”) and the Department of Health and Human Services (“HHS”) Office of the Inspector General (“OIG”) issued two highly anticipated (and quite extensive) Final Rules to reform the Stark Law and Anti-Kickback Statute (“AKS”) regulations. The Final Rules generally take effect on January 19, 2021. The Final Rules include new safe harbors for the AKS and new exemptions to the Stark Law to allow for greater flexibility. According to the HHS, the goal of updating both laws is to make it easier for providers to engage in care coordination and value-based care programs without running afoul of the statutes. Please note that this client alert could not cover the full extent of the Final Rule changes so please contact your BMD Healthcare attorney with questions.Client Alert

Mandatory Filings Under CFIUS New Rules

December 11, 2020On September 15, 2020, the Committee on Foreign Investment in the United States (“CFIUS”) promulgated a final rule modifying its mandatory declaration requirements for certain foreign investment transactions involving “TID US businesses” (sensitive U.S. businesses dealing in critical technologies, critical infrastructure and sensitive personal data) dealing in “critical technologies” – i.e., U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies. The new rule also makes amendments to the definition of the term “substantial interest” (used to determine whether a foreign government has a substantial interest in an entity). The final rule became effective on October 15, 2020.Client Alert

IRS Guidance on Employee Retention Credit

December 11, 2020The Employee Retention Credit created under Section 2302 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Since the adoption of the CARES Act, employers have expressed concern that if one employer acquires another employer that previously received a PPP loan, the acquirer’s entire aggregated group may no longer be eligible to claim the Employee Retention Credit.
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