Corporate Transparency Act Enforcement Enjoined Nationwide

On December 3, 2024, a federal district court in Texas ruled that the Corporate Transparency Act (CTA) is likely unconstitutional, issuing a preliminary nationwide injunction against its enforcement. As a result, entities previously required to file under the CTA are temporarily exempt from compliance. However, this status could change swiftly depending on the government’s response.

This update outlines the ruling, its implications, and what entities should know about CTA compliance moving forward.

Overview of the Corporate Transparency Act

Enacted in 2021, the CTA mandates corporations, limited liability companies (LLCs), and certain other entities created or registered in the United States to submit beneficial ownership interest (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). These reports identify the natural persons who own or control the entity.

A regulation known as the Reporting Rule implements the CTA, establishing compliance deadlines—including a January 1, 2025, filing requirement for entities created or registered before January 1, 2024—and detailing the information to be reported.

Legal Challenges to the CTA

In March 2024, the U.S. District Court for the Northern District of Alabama ruled the CTA unconstitutional, permanently enjoining its enforcement for the plaintiffs in that case. The government appealed, and the Eleventh Circuit’s decision is pending.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas expanded on this, granting a preliminary nationwide injunction against the CTA. This case involved plaintiffs including Texas Top Cop Shop, Inc. and the National Federation of Independent Business (NFIB).

Key Findings of the Texas Court

In a 79-page opinion, Judge Amos L. Mazzant concluded the following:

1. Commerce Clause: The CTA does not regulate interstate commerce or activities that substantially affect it.
2. Necessary and Proper Clause: The CTA is not rationally related to any enumerated congressional powers, including regulating commerce, conducting foreign affairs, or collecting taxes.

Unlike the Alabama ruling, which applied only to the plaintiffs in that case, the Texas court’s decision enjoins enforcement of the CTA nationwide. The court also stayed the Reporting Rule’s effective date under the Administrative Procedure Act.

Potential Government Response

The federal government has 60 days to appeal the Texas court’s preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit. It may also seek an emergency stay to reinstate the CTA’s enforcement while the appeal is pending. If unsuccessful, the government could escalate the case to the Supreme Court.

FinCEN is expected to issue guidance clarifying the implications of the ruling, potentially adjusting the January 1, 2025, filing deadline.

Implications for Affected Entities

For now, reporting companies are not required to comply with the CTA or the Reporting Rule. However, entities should monitor developments closely as legal obligations may change with little notice.

If the Fifth Circuit or Supreme Court stays the Texas court’s ruling, the Reporting Rule could become enforceable again, reactivating the January 1, 2025, deadline. FinCEN may revise compliance timelines depending on the duration of the injunction.

Entities should prepare for potential compliance by consulting advisors such as Corri Fetman & Associates, Ltd. and staying informed on updates from FinCEN and the courts.

Conclusion

The nationwide injunction against the CTA introduces uncertainty for affected businesses, but the situation is far from resolved. Companies should remain vigilant and ready to act should enforcement resume. Legal challenges, including potential Supreme Court review, will ultimately determine the CTA’s future.

Corri Fetman & Associates, Ltd. will be monitoring the CTA. For more updates on the Corporate Transparency Act and business goals, check back with Corri Fetman & Associates, Ltd. at our website or check our social media.