Court Blocks Corporate Transparency Act on Eve of Deadline

Just as co-op and condo boards were scrambling to meet the looming deadline to file reports required by the Corporate Transparency Act (CTA), a Texas court has issued a nationwide injunction against enforcement of the law, finding that the government was unable to provide “any tenable theory that the CTA falls within Congress’s power,” and is therefore likely to be found unconstitutional. Boards, attorneys and management companies can breathe a sigh of relief — at least for the moment. 

The CTA required more than 32 million businesses, including co-op and some condo board directors, to submit beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department by Jan. 1, 2025. The law was intended to bring greater transparency to limited liability companies in an effort to combat money laundering, fraud and tax evasion. The injunction was issued in response to a suit filed by the National Federation of Independent Businesses, which claims over 300,000 members. In addition, “there are a bunch of different lawsuits out there across the country,” says William McCracken, partner at the law firm Moritt Hock & Hamroff. “These were all land mines that could go off at any point.”

McCracken had been sending out monthly alerts to his firm's co-op and condo clients, urging them to file their reports before the deadline. “I was telling them what they needed to do, and then literally half an hour later we got news of this injunction,” he says. “I had to call everyone back and tell them, ‘Well, forget all that I told you.'”

The CTA required the naming of all beneficial owners of a business entity, including co-op board directors and some condo board members. A new report was to be filed every time there was a change in board membership. Failure to comply could result in civil penalties of up to $591 per day, as well as criminal penalties of up to $10,000.

It’s uncertain what lies ahead. FinCEN "may appeal the injunction and argue that the current filing requirements should remain in place until there is a final resolution on the merits of the case," says Ken Jacobs, a partner at the law firm Smith Buss & Jacobs. "But an appeal could take months or even years unless the courts agree to address it on an emergency basis. We have been filing BOI information on behalf of our co-op and condo board clients, charging a fee of $600. But I’m now advising those who haven’t filed to delay doing so until we get more clarity on what FinCEN plans to do.”

Some management companies are also taking a wait-and-see approach.  “We are pausing our compliance efforts for the time being and watching closely,” says Dennis DiPaola, chief legal officer at Orsid New York.

Adds McCracken, the attorney: “It is a preliminary injunction in one district court and certainly not the final word, so there's more to come. But people who haven't already filed it are left in a state of limbo.”