On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (“CTA”). The CTA, which went into effect on January 1, 2024, requires “reporting companies” in the United States to disclose information about their beneficial owners (“BOIs”)—the individuals who own or control the company – to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). In addition, the CTA requires companies created or registered in the United States during 2024 to submit a BOI report to FinCEN within 90 days of creation or registration. This time frame is then shortened to 30 days on January 1, 2025.
In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex), the Court held that the CTA was likely unconstitutional, specifically determining that Congress exceeded its legislative powers when it enacted the CTA. Further, it was stated that neither the CTA nor its related regulations may be enforced, and that reporting companies need not comply with the CTA’s January 1, 2025 reporting deadline for beneficial owners.
It is important to note that the Court’s order only temporarily pauses enforcement of the CTA. Enforcement could resume if the Court theoretically reconsiders the injunction, the Court’s order is overturned on appeal, or the federal government ultimately prevails on the merits of its argument that the CTA is constitutional.
It is the opinion of the Knudsen Law Firm that the CTA will ultimately be found to be constitutional, due to the long history of case law supporting Congress’s expansive powers under the U.S. Constitution’s Commerce Clause. Therefore, it is recommended that clients to whom the CTA applies continue to work with the firm’s attorneys in meeting the CTA’s reporting requirements and avoid potentially sudden enforceability consequences.
By: Anthony Budell