December 2024 Update on the Texas Federal Court’s “Thumbs Down” of the Corporate Transparency Act Requirements

Remember the last time we opened the Sensenig Law Firm Blawg with “all bets are off” related to the wild ride that has been employment law in 2024? Well, it turns out that “all” really meant “all,” as now the federal courts located in the State of Texas have begun shooting down Congressional action, which is bold even by the United States of Texas’s standards.

First up in the crosshairs was the Corporate Transparency Act (“CTA”), which you likely heard about from us among other sources.  At length. Many of you have likely already gone to https://boiefiling.fincen.gov/ and registered all of your “Beneficial Owner Information” with FinCEN. Well, it turns out, the federal court in Texas held that you needn’t have bothered.

Recent events have seemed to indicate that no federal administrative action will occur in the United States without the federal courts in Texas weighing in, barring some drastic shift in how our federal court systems work. “Fool us once,” and all that. But the CTA was a law passed by Congress as a part of the National Defense Authorization Act! Surely that would pass muster, even before the notoriously skeptical Eastern District of Texas. The CTA was a bi-partisan Congressional effort to thwart organized crime, and it was a part of something called the “National Defense Authorization Act;” who could possibly object to this?

Well, in short, apparently even Congress seems to answer to the de facto highest court in the land, as the Sharman Division of the Eastern District of Texas effectively struck down the CTA’s BOI-filing requirement altogether, meaning that, in the Court’s own words: “[R]eporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” That last bit is a formality; federal courts rarely reverse their own decisions after granting a preliminary injunction declaring that the law before it is “likely unconstitutional.” 

Believe it or not, in our federalist system, federal courts from any given state are vested with the power to overturn both Congressional or Administrative actions that such courts deem unconstitutional, and such rulings are enforceable nationwide. It would be outside the scope of this memo – and far too deep into the weeds – to explain why it’s much easier for a federal court to strike down any given Congressional or administrative action than it is for another court to uphold it, so you’ll just have to take our word for it that Texas’ word on this is final.  This means that there’s no reason to assume that the CTA is going to rise from the dead anytime soon. Congress will have to start right back at square one for another bite at the apple – and there is usually not much of an appetite to start the process over again. 

The CTA could come back if a higher court – specifically, either the 5th Judicial Circuit Court (in our humble opinion not happening), or the Supreme Court of the United States (definitely not happening) – reversed the Texas Court’s opinion, which has not happened in recent memory. 

Based on the Texas federal court’s holding, no one will be required to provide FinCEN with any of the information requested at https://boiefiling.fincen.gov/, and the CTA is effectively dead in the water.  We at the Sensenig Law Firm are not fans of providing governmental agencies with more information than is required by law - and the law as interpreted by the Texas federal court cannot require businesses to complete the CTA.  

At this point, we don’t blame you for feeling frustrated with the seesaw between “don’t miss this looming deadline” and “actually, never mind, nothing has changed.” Trust us, we are every bit as frustrated as you are – more so, in the sense that we actually have to read these laws, rules, and regulations on the off-chance any of them ever take effect.  We won’t take the chance to say, “Why bother?” to our clients as inevitably that will be the time that the new standard actually takes effect. We simply have no choice but to continue reporting on Congressional and administrative efforts to govern.  At the same time, we don’t want our valued clients thinking we are crying wolf too often.  

The Sensenig Law Firm will continue providing you with these courtesy updates to any new or proposed laws, rules, and regulations that might impact your business, as well as the 11th-hour retractions.  We may need to start noting at both the beginning and end of our posts from now on whether the legal issue at hand is subject to review by the Eastern District of Texas, because if so, strange things may be afoot at the Circle K – and in the Eastern District of Texas.