Recent court decision:
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the U.S. Department of Treasury from enforcing the Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) reporting requirements nationwide.
In Texas Top Cop Shop, Inc., et al. v. Garland, et al. the Court determined that Congress exceeded its legislative powers when it enacted the CTA, which the Court characterized as “quasi-Orwellian.” In the Court’s view, upholding the CTA and its requirement that most entities created or registered under state law must continually disclose information to the federal government “would be to rubber-stamp a new form of federal power” that would “threaten the very fabric of our system of federalism.” The Court saw the CTA as a dangerous precedent, observing that “if the Court were to sanction such an extension of legislative power today, then there is no telling how Congress would control companies tomorrow. The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially through the CTA.” The Court further found that forcing reporting companies to comply with the CTA substantially threatens their constitutional rights. Given the CTA’s constitutional flaws and threatened harm, the Court enjoined the federal government from enforcing it pending further order of the Court.
The nationwide injunction means that business owners do not need to comply with the CTA’s reporting requirements while the injunction is in place, including the requirement for businesses that were in existence prior to January 1, 2024 to provide BOI reports to FinCEN by January 1, 2025. The practical effect of this injunction is that the federal government must refrain from imposing penalties and requiring compliance with the CTA until further legal determinations are made regarding the constitutionality and implementation of this injunction.
Although no public announcement has yet been made, the federal government is expected to appeal the court’s decision. The court’s order is a preliminary injunction only. While it temporarily pauses enforcement of the CTA on a nationwide basis, enforcement could resume if the injunction is later reversed.
If you are not familiar with the Corporate Transparency Act’s BOI reporting requirements, see our previous article below.