Federal Judge Halts Enforcement of Corporate Transparency Act

By January 1, owners of farms that are incorporated or formed as limited liability companies (LLCs) were going to have to report their beneficial ownership to the U.S. Department of Treasury or face stiff fines. As of last Tuesday, they’re off the hook — for now.

On Dec. 3, a federal judge from the Eastern District of Texas (Sherman Division) issued a preliminary nationwide injunction, preventing Treasury’s Financial Crimes Enforcement Network (FinCEN) from enforcing the Corporate Transparency Act (CTA) and its implementing regulations. The CTA authorizes FinCEN to require beneficial ownership information (BOI) reports in order to help catch crooks who use shell companies for money laundering and other financial crimes.

Unpopular Law

The reporting requirement was unpopular with farm groups and the National Federation of Independent Businesses and has been challenged by multiple lawsuits, including a Texas case brought by Texas Top Cop Shop, a business that sells tactical gear and apparel to law enforcement and the general public.

That’s the lawsuit that Federal District Court Judge Amos Louis Mazzant III (an appointee of President Barack Obama) ruled on this week. Mazzant ruled that the CTA and its reporting requirements “may not be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”

Not Over Yet

Business owners should be cautious about celebrating too soon, however, according to a brief analysis of the ruling released Friday by Kristine Tidgren, director of the Center for Agricultural Law and Taxation at Iowa State University.

“Although this court order prevents FinCEN from enforcing the CTA and its regulations, the preliminary injunction could be lifted at any time,” Tidgren wrote. “Because the reporting deadline is approaching, reporting companies who have not filed should watch carefully for further guidance. We are awaiting a statement from FinCEN. In the meantime, it appears that companies may continue to file if they so choose. Those that do not file should be prepared to make that filing in the event the injunction is lifted. It should be noted that the court order does not specifically address new companies currently subject to the 90-day deadline for reporting. Although the broad injunction of enforcement should equally apply to them, the court did not offer a specific ‘need not comply’ statement for this category of reporting companies.”

Not all farms had to report. Sole proprietorships and general partnerships were already exempt. The law applies to farms organized as corporations, LLCs, or other entities on file with a secretary of state.

Entities formed this year already had to report to FinCEN. For other, older ones, the deadline was Jan. 1, 2025. Penalties for not filling were fines of up to $10,000 and two years in federal prison.

Senator Tommy Tuberville (R-AL) and Representative Warren Davidson (R-OH) have already introduced a bill to repeal the CTA. It has the support of more than 100 trade groups, including the American Farm Bureau Federation and the National Cattlemen’s Beef Association.