Federal Court halts Corporate Transparency Act Enforcement: What does it mean for Condos and Homeowners Associations?

Federal Court halts Corporate Transparency Act Enforcement: What does it mean for Condos and Homeowners Associations?

The Corporate Transparency Act (“CTA”) has been a significant concern for community associations in 2024. The CTA requires corporate entities, including many condominium and homeowners associations, to report personal information for individuals exercising substantial control of these entities by the end of 2025.  Individuals that qualify as beneficial owners under the Corporate Transparency Act would need to report  names, dates of birth, addresses, provide unique government ID numbers, and copies of a government ID. Noncompliance with the Corporate Transparency Act could result in fines of up to $500 per day, capped at $10,000, imprisonment of up to two years, and other penalties.

However, on December 3, 2024, a Texas federal court issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc v Garland, No. 4:24-CV-478, 2024 WL 4953814, at *37 (ED Tex, December 3, 2024), temporarily halting the enforcement of the CTA. Specifically, the Court held as follows:

Plaintiffs have satisfied all prerequisites for a preliminary injunction. The Court has authority to issue the injunction Plaintiffs seek under Federal Rule of Civil Procedure 65(d). The CTA is likely unconstitutional as outside of Congress’s power. Because the Reporting Rule implements the CTA, it is likely unconstitutional for the same reasons. The Court has not addressed the issue of the CTA’s constitutionality as applied to these Plaintiffs or Plaintiffs’ challenges under the First and Fourth Amendments. Having determined that Plaintiffs have carried their burden, the Court GRANTS Plaintiff’s Motion for a Preliminary Injunction. Therefore, the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.

Accordingly, as of December 3, 2024, the reporting requirements for corporate entities under the CTA, including condominium and homeowners associations, are suspended.

Key Takeaways from Texas Top Cop Shop, Inc v Garland

• Broad Nationwide Impact: Unlike an earlier Alabama court decision, National Small Business United, d/b/a the National Small Business Association, et al, v Janet Yellen, in her official capacity as Secy of the Treasury, et al, Case 5:22-CV-1448-LCB, 2024 WL 899372, at *1 (ND Ala, March 1, 2024), that applied only to specific parties, the Texas federal court’s ruling halts FinCEN’s enforcement of the CTA nationwide, including for community associations.
• Rationale for the CTA Injunction: The Texas Court found the CTA likely unconstitutional, citing concerns over Congressional overreach. The ruling paused the January 1, 2025, reporting deadline under the CTA until further order of the court.
• Potential Appeal: Similar to the Alabama case, the federal government will likely appeal the decision, which could result in a stay or reversal of the injunction. FinCEN has not yet commented on the decision though.

Conflicting CTA Court Decisions

While the Texas decision offers temporary relief, several other federal courts around the country have denied requests for preliminary injunction to stop the enforcement of the CTA.  Specifically, the following cases have held that the CTA is likely constitutional:

• Small Business Ass’n of Michigan v Janet Yellen, et al, Case No. 1:24-CV-00314 (W.D. Michigan, April 26, 2024)
• Firestone, et al, v Janet Yellen, et al, Case No. 3:24-cv-1034, (D. Oregon, September 20, 2024)
• Community Associations Institute, et al, v Janet Yellen, et al, Case No. 1:24-cv-01597, (E.D. Virginia, September 10, 2024)

As such, while the enforcement of the CTA is temporarily halted, given the above rulings, it is possible that a different court could reach a different decision.

Conclusion

While the ruling in Texas Top Cop Shop, Inc v Garland, No. 4:24-CV-478, 2024 WL 4953814, at *37 (ED Tex, December 3, 2024) is favorable for community associations, the fight over the constitutionality of the Corporate Transparency Act is likely to continue in court for the foreseeable future.  Given that additional court rulings will likely be issued, we recommend the following:

• Monitor Developments: Stay informed about updates from appellate courts and FinCEN to determine if and when BOI reports will need to be filed in the future.
• Consider Filing a BOI Report with FinCEN: Although the Texas ruling suspends enforcement, filing a beneficial ownership report before January 1, 2025, may still be prudent to avoid substantial fines and potential jail time if the injunction is stayed or reversed before the end of the year. This is still the safest course of action to eliminate risks for community associations and directors.
• Prepare for Possible CTA Deadlines: If the injunction is overturned without an extension of the filing deadline, compliance could become challenging, so it may be beneficial to at least collect the information necessary to complete a filing and have it on hand.

While we anticipate that the new administration will not continue to challenge the enforceability of the Corporate Transparency Act in 2025, and the Texas court ruling temporarily suspends the need to file a BOI report under the CTA, community associations should continue to carefully monitor this situation as it is fluid and reporting requirements could change any day. Filing BOI reports now could prevent future penalties if the CTA is reinstated, even if it is not presently legally required. If you are unsure whether your community association should comply with the CTA considering this recent ruling, please contact Hirzel Law for further assistance.

 

Kevin Hirzel is the Managing Member of Hirzel Law, PLC. He concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association law, and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. Mr. Hirzel has been recognized as a Michigan Super Lawyer’s Rising Star in Real Estate Law by Super Lawyers Magazine, a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine, and as a Best Lawyer in Real Estate Law by U.S News and World Report’s Best Lawyers Publication. Hirzel Law, PLC represents community associations, condominium associations, cooperatives, and homeowners associations, in Michigan and Illinois. He may be reached at (248) 986-2290 or kevin@hirzellaw.com.