FinCEN appeals nationwide Corporate Transparency Act Injunction: What is the impact on Community Associations?

FinCEN appeals nationwide Corporate Transparency Act Injunction: What is the impact on Community Associations?

On December 3, 2024, a federal court in Texas 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 Corporate Transparency Act. 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.

As of December 3, 2024, the reporting requirements for corporate entities under the CTA, including condominium and homeowners associations, are suspended.  On December 5, 2024, the federal government appealed the nationwide preliminary injunction halting enforcement of the Corporate Transparency Act (“CTA”). FinCEN has issued the following statement on its website:

In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.

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The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering.  The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.

On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.

Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.

While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.

While enforcement of the CTA is paused for now, the legal landscape could shift quickly. The district court’s order could be stayed or overturned before the year-end filing deadline—leaving community associations scrambling at the end of the year.  As indicated in the above statement, FinCEN will only honor the injunction as long as it remains in effect, but it is still of the belief that the CTA is constitutional. We recommend filing a Beneficial Ownership Information (BOI) report by December 31, 2024, as this is the only guaranteed way to avoid the risk of $10,000 in fines or jail time as FinCEN has indicated it will continue to accept voluntary filings while the injunction remains in place.  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.