Federal Court Blocks Enforcement of the CTA Nationwide

UPDATE on Corporate Transparency Act

Reporting Companies “Need Not Comply” with January 1 Deadline

On December 3, 2024, a federal court based in Texas issued an injunction prohibiting the federal government from enforcing the Corporate Transparency Act (CTA) anywhere in the country. 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 and that its implementation would irreparably harm reporting companies who would be forced to divulge sensitive information about their beneficial owners to the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025.  If allowed to go forward, the CTA would have applied to an estimated 32.5 million companies. 

The Court found that Congress exceeded its legislative powers when it enacted the CTA.  The Court stated the CTA was “quasi-Orwellian” and would set a dangerous precendent.  The Court further opined that the application of the CTA “would be to rubber-stamp a new form of federal power” that would “threaten the very fabric of our system of federalism”  and that forcing reporting companies to comply with the CTA substantially threatens their constitutional rights. 

The Court further found that because of the CTA’s constitutional flaws and threatened harm, it should be blocked pending further order of the Court.

What Does All This Mean to Your Company?

The court addressed this issue stating that “[existing] reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline,” and that FinCEN cannot enforce any of the CTA’s penalties for willful noncompliance against entities or individuals.

We will watch this issue closely because the Court entered only a preliminary injunction, which it could theoretically reconsider at some point in the future. In addition, the Court’s decision may be appealed by the Government to the United States Court of Appeals for the Fifth Circuit.   If that court allows the decision to stay then another appeal could be taken to the United States Supreme Court. 

As of this date, however, the decision controls and you will not have to comply with the CTA.

For additional information on the CTA and its application, please see our initial blog at:  https://glgattorneys.com/the-corporate-transparency-act-and-its-impact-on-construction-companies/