CTA UPDATE: Federal Court Blocks Reporting Requirements Under the Corporate Transparency Act

A federal judge in Texas has issued a nationwide injunction temporarily halting the implementation of the Corporate Transparency Act (“CTA”), preventing U.S. businesses from being required to disclose their beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”). The decision, rendered on December 3, 2024, blocks the enforcement of the CTA’s reporting requirements, which were set to take effect on January 1, 2024, with an initial filing deadline of January 1, 2025.

Impact on Businesses Authorized Doing Business in the United States

• No BOI filing obligations are in effect while the injunction stands.
• Companies are not required to comply with the December 31, 2024, deadline unless the ruling is overturned or modified in future court decisions.
• The ultimate outcome of this decision is uncertain at this time. For those businesses that were in existence prior to January 1, 2024 and have not filed a BOI report yet, it is our recommendation that such continue to gather the requisite information for filing and to be prepared for filing in anticipation of an order by the U.S. Court of Appeals. In the event this temporary injunction is overturned or otherwise limited by the U.S. Court of Appeals, then existing reporting companies will be required to file their initial BOI report no later than January 1, 2025. To date, FinCEN is continuing to accept BOI reports and has not issued any public statement about the decision or their enforcement of the CTA. It is imperative that businesses stay updated on further developments, as the case may have long-term implications for compliance under the CTA.

While this decision and the implications continue to develop, please feel free to contact our team for further assistance or questions about the implications of this ruling and recommended next steps.

Summary of December 3rd Decision

The injunction arises from a lawsuit filed by Texas Top Cop Shop, Inc., (a firearms retailer) and other plaintiffs, including the Libertarian Party of Mississippi, who challenged the law on constitutional grounds. The plaintiffs argue that the CTA exceeds the powers afforded to Congress under the Commerce Clause by compelling disclosure from business entities that do not engage in interstate or foreign commerce.

Judge Amos L. Mazzant III, in his ruling, did not declare the CTA unconstitutional but stated that the law likely oversteps Congress’s authority. His opinion suggests that the CTA’s broad application to all businesses, regardless of their commercial activity, may not be consistent with the Constitution’s limitations on federal power. As a result, the court granted a preliminary injunction, noting that the plaintiffs demonstrated a strong likelihood of success on the merits of their claims.

The court’s decision means that, for now, all businesses across the country are temporarily exempt from the CTA’s reporting obligations. With the injunction in place, there is no immediate requirement for companies to submit their beneficial ownership information to FinCEN. This relief will remain in effect while the case moves through the legal system.

The CTA, aimed at enhancing transparency and curbing illegal financial activities such as money laundering and terrorism financing, was set to impact millions of businesses. It would have mandated more than 30 million entities to submit reports on their beneficial ownership and control structures to the Treasury Department by the end of 2024.

Although the court’s order does not resolve the ultimate question of the law’s constitutionality, it postpones the implementation of one of the most significant corporate disclosure requirements in recent U.S. law. This injunction creates a degree of uncertainty for companies that were preparing to comply with the CTA’s requirements and may now have additional time to assess the situation as legal proceedings continue.

* The case is Texas Top Cop Shop, Inc. v. Garland, Case No. 4:24-cv-00478, U.S. District Court for the Eastern District of Texas.