On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a decision in Texas Top Cop Shop, Inc., et al. v. Garland, et al., granting a preliminary nationwide injunction against the enforcement of the Corporate Transparency Act (CTA).

This court ruling impacts condominium, homeowner (HOA), and townhome community association across the U.S. by blocking the U.S. Department of Treasury from enforcing the CTA’s beneficial ownership information (BOI) reporting requirements.

The plaintiffs in the case argued that the CTA exceeded Congress’s authority, compelled speech improperly, contradicted First Amendment rights, and violated the Fourth Amendment by mandating the disclosure of private information.

Judge Amos L. Mazzant III ruled that the U.S. Department of the Treasury cannot enforce the CTA or its implementing regulations, stating that reporting companies (including community associations) are not required to comply with the CTA’s January 1, 2025, reporting deadline until further notice.

You can read the full court opinion here: https://www.cir-usa.org/wp-content/uploads/2024/05/cta-v-garland-district-court-opinion-preliminary-injunction.pdf

 

Legal Updates:

On December 5, 2024, the government filed a notice of appeal with the U.S. Court of Appeals for the Fifth Circuit, seeking to challenge the preliminary injunction issued by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland, et al.

On December 6, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) posted the following notice on their website (https://fincen.gov/boi):

“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…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.”

On December 13, 2024, the DOJ urged the appellate court to issue a decision on its appeal by December 27, 2024.

On December 17, 2024, Congress unveiled its spending bill which includes a one-year postponement of the CTA filing requirement. For the one-year delay to take effect, both the U.S. Senate and the U.S. House of Representatives must approve the bill.

 

What This Means for Community Association Board Members?

This is a temporary injunction, and we strongly encourage our community association clients to stay informed about ongoing legal developments as they impact the Corporate Transparency Act (CTA).

Federal courts in Oregon, Michigan, and Virginia have previously rejected motions for preliminary injunctions. A limited injunction issued by a federal district court judge in Alabama is currently under review. Additionally, the December 5, 2024, government appeal will bring the matter before the Fifth Circuit, where the outcome could influence the future scope and enforcement of the Corporate Transparency Act (CTA).

This preliminary nationwide injunction provides a temporary pause, allowing the courts and potentially the Supreme Court, to further deliberate on the constitutional issues at hand.

 

How Does This Temporary Injunction Impact Community Association Board Members Who Have Not Yet Completed the Corporate Transparency Act’s Filing Requirements?

For now, community associations are not required to file reports under the CTA so there’s nothing further to do at this time. Board members should remain aware of legal developments and, if the requirements change, you can address them should the preliminary injunction be lifted or modified.

 

How Does This Temporary Injunction Impact Community Association Board Members Who Have Completed the Corporate Transparency Act’s Filing Requirements?

If a community association’s board members have already completed the CTA reporting requirements, they have complied with the law and all set should the reporting requirement be reinstated. No further action is needed and your proactive efforts position your association to remain compliant should the temporary injunction be lifted or modified.

 

Background on the Corporate Transparency Act

The Corporate Transparency Act (CTA) mandates that certain businesses disclose ownership information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The primary goals of the CTA are to increase business transparency and accountability in an effort to prevent illegal financial activities such as fraud, money laundering, and tax evasion.

Under the CTA, certain community associations will be required to report detailed information about their board members to the Financial Crimes Enforcement Network (FinCEN). Current board members of these associations are considered “beneficial owners” under the CTA.

Consequently, board members must provide FinCEN with detailed personal information, including their legal name, date of birth, residential address, and a copy of a valid, unexpired government-issued identification.

Penalties for non-compliance, whether intentional or not, could result in severe penalties, including fines of up to $10,000 and up to two years in prison.

 

Legal Resource

KSN will continue to monitor the situation, the status of the Corporate Transparency Act (CTA), and its impact on community associations.

For more information, you can reach KSN by calling 855-537-0500 or visiting our website at www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

 

Please note the material contained in this article is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained in this article. You should not act on the information discussed in this article without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information in this article, the law can change quickly. Accordingly, please understand that information discussed in this article may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed in the article law at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the article, or the accessibility of the article generally. This article may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2024 Kovitz Shifrin Nesbit, A Professional Corporation.