As of January 2024, a new reporting obligation came into effect for many U.S. entities as well as for foreign entities authorized to do business in the U.S., under the Corporate Transparency Act (CTA). Under the CTA, many companies are required to report the identities of individuals who directly or indirectly possess “ownership” or “control” over them, further to criteria established under the CTA. The purpose of the CTA is to prevent the exploitation of U.S. companies for money laundering and criminal activities.
On Tuesday, December 3, 2024, a federal court in the Eastern District of Texas issued a preliminary injunction (in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), enforceable throughout the U.S., which (1) enjoins CTA, including the enforcement of this law and regulations designed to meet reporting requirements under the CTA, and in particular, (2) freezes all deadlines under the CTA. The federal court determined in its decision, that there is a likelihood that the CTA is unconstitutional, but a final decision on the matter has not yet been reached.
On December 5, 2024, the U.S. Department of Justice (DOJ) filed a notice of appeal against the temporary injunction, on behalf of the Department of the Treasury. Concurrently, the U.S. Treasury Department published a statement noting that several district courts have thus far rejected requests to enjoin the CTA and that the government continues to believe—based on conclusions of federal courts in other districts—that the CTA is constitutional. However, the U.S. Treasury Department also clarified in its statement that as long as the restraining order is in effect, there is no obligation to submit reports under the CTA, but reports may be submitted voluntarily.
At this stage, it is still unclear when the appellate court will issue its opinion, and it is possible a resolution may be reached in the coming days. The uncertainty particularly affect entities that have a filing deadline coming up, including many entities formed before 2024 who need to submit their filings by 1/1/25. Therefore, at this stage, it is prudent to continue preparing to submit reports, as planned, to meet the submission deadline by the end of the year, and, at the same time to continue to monitor developments.
This memorandum contains general information only and does not constitute legal advice or a substitute for legal counsel. This memorandum is provided as a service to our clients, with the clarification that in any specific case, a separate discussion must be held regarding the matter at hand.
For any questions or clarifications, please contact our team responsible for this matter at the email address: CTA@shibolet.com.
