On December 3, 2024, a federal court in Texas issued a nationwide injunction blocking the enforcement of the Corporate Transparency Act (CTA). The ruling came from the Eastern District of Texas in the case Texas Top Cop Shop, Inc., et al. v. Garland, et al. (Case No. 4:24-cv-478). The CTA would have required approximately 32.5 million U.S. companies to report sensitive information about their beneficial owners (BOI) to the Financial Crimes Enforcement Network (FinCEN) starting January 1, 2025. The court deemed the law likely unconstitutional and held that forcing compliance would cause irreparable harm to businesses.

Court’s Findings

The court described the CTA as a “quasi-Orwellian” measure that overstepped Congress’s legislative authority. It warned that the law threatened the constitutional rights of businesses and undermined the federal system of governance. The decision stressed that allowing such legislative overreach could set a precedent for excessive federal control over private entities.

In light of these concerns, the court issued an injunction, stating explicitly that the CTA and its associated regulations could not be enforced. Businesses were relieved of the obligation to meet the January 1, 2025, reporting deadline for BOI disclosures.

Broader Implications

The ruling marked a significant departure from prior cases that addressed the CTA’s constitutionality. It applied the injunction nationwide, shielding all reporting entities from penalties for noncompliance. The CTA’s provisions also targeted newly created or registered businesses, requiring BOI reports within 90 days, a timeframe that would shrink to 30 days after January 1, 2025. According to FinCEN, approximately 5 million new businesses are registered annually, and over 8 million BOI reports had already been filed by newly established entities.

Legal Outlook

The court’s order is a preliminary injunction, leaving room for future legal developments. The federal government is expected to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit and potentially to the Supreme Court. However, unless the injunction is overturned, businesses remain exempt from CTA compliance.

Key Takeaways

1. The nationwide injunction relieves existing and newly registered companies from the January 1, 2025, BOI reporting deadline.
2. FinCEN cannot enforce penalties for willful noncompliance under the CTA while the injunction remains in place.
3. The decision underscores ongoing debates about the scope of federal authority and the balance between regulatory oversight and constitutional protections.

Businesses affected by this ruling should stay informed about ongoing legal developments and consult legal counsel to understand how the case may impact their reporting obligations.