A federal district court in Texas issued a preliminary nationwide injunction on December 3, 2024, blocking the Corporate Transparency Act (CTA) and its associated regulations, which require U.S. business entities to report beneficial ownership information to the Treasury Department.
The injunction was granted by Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas in response to a lawsuit filed by Texas Top Cop Shop Inc., a family-owned business in Texas, along with other businesses and the Libertarian Party of Mississippi. The plaintiffs argued that the CTA exceeds Congress's authority to regulate interstate and foreign commerce by imposing requirements on incorporated entities, regardless of whether they engage in commercial activities.
Under the CTA, most small businesses were required to disclose their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. The government contended that the law was essential to combatting anonymous shell companies and preventing money laundering, terrorism financing, and other illicit activities, asserting that it fell within Congress's constitutional powers.
However, the court ruled that while Congress may regulate corporate activity, the Commerce Clause does not extend to requiring the disclosure of information for law enforcement purposes, rendering the CTA unconstitutional in this regard.
"The Court determines that the injunction should apply nationwide. Both the CTA and the Reporting Rule apply nationwide, to 'approximately 32.6 million existing reporting companies.' . . . [a]s the Government states, the Court cannot provide Plaintiffs with meaningful relief without, in effect, enjoining the CTA and Reporting Rule nationwide. The extent of the constitutional violation Plaintiffs have shown is best served through a nationwide injunction."
It is too soon to know yet how FINCEN will respond and whether or not deadlines to file will be extended as a result of this injunction. We will update with further guidance as it becomes available.
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