Texas court imposes nationwide temporary freeze on enforcement of the Corporate Transparency Act; filings voluntary pending appeal

By Greg Chandler

For now, Indiana homeowners associations and condominium associations are free from the obligation to comply with the filing requirements of the Corporate Transparency Act (CTA). In a federal lawsuit brought by the National Federation of Independent Businesses, the U.S. District Court for the Eastern District of Texas granted a preliminary injunction against the enforcement of the Corporate Transparency Act. The plaintiffs attacked the CTA on a host of constitutional grounds. As a result of the ruling, associations are temporarily relieved from the obligation to file entity and beneficial owner information under the CTA.

A federal court in Alabama held similarly earlier this year. However, unlike the Alabama decision, the Texas court specifically ruled that the injunction applies nationwide.

On Thursday, the Department of Justice appealed the ruling to the U.S. Court of Appeals for the Fifth Circuit. It is unknown whether the Fifth Circuit Court of Appeals will rule on the injunction by the end of the year. Meanwhile, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a statement advising that CTA filings are voluntary while the injunction remains in effect.

About the CTA:

Adopted into law by Congress in 2021, the CTA requires business entities – including the vast majority of community associations – to register information concerning the entity and its “beneficial owners.” Consequently, association board members must register with FinCEN. The CTA prescribes substantial criminal and civil penalties for noncompliance.

Does this court ruling mean the CTA has disappeared?

No. While the Texas ruling is an encouraging sign for community associations, the injunction is temporary in nature and could be overturned by a higher court. Federal courts in other jurisdictions have held that the CTA is both constitutional and enforceable, creating some inconsistencies in judicial rulings.

Subsequent appellate rulings will further clarify the enforceability of the CTA. As it stands, there is reason for optimism, but community associations should currently consider this a temporary reprieve.

What should the association board do?

Presently, there is no requirement to file entity and beneficial ownership information with FinCEN. Boards that have not yet filed their initial reports with FinCEN may hold off on filing for the time being. Boards that have already filed their initial reports can hold off on filing updates. Again, this may change if the injunction is lifted.

Can we file anyway?

Yes. At this time, filing a CTA report is voluntary. Some of our clients have indicated that they plan to file their CTA reports with FinCEN regardless of the ruling. Their rationale is that they want to be safe in case the injunction is overturned or modified, which could hypothetically happen before the end of the year. We anticipate that some Indiana community associations will take this stance out of an abundance of caution.

Because of the significant penalties associated with noncompliance and the uncertainty surrounding the pending appeal, our firm recommends that boards still consider doing their initial filing by the end of the year.

Stay tuned for more information.

Given the recent court ruling, it is possible the CTA requirements will disappear in the near future, though it is impossible to predict at this juncture. We will continue monitoring the CTA and will provide information as the legal landscape surrounding the CTA evolves.

If you would like to discuss these or other issues with our firm, please contact one of our firm’s attorneys directly or email us through the firm’s website at info@IndianaHOALaw.com.