On December 3, 2024, in Texas Top Cop Shop, Inc., et al. v. Garland, et al. (Case No. 4:24-cv-478-ALM), the U.S. District Court for the Eastern District of Texas issued a preliminary nationwide injunction against the enforcement of the Corporate Transparency Act (CTA) and its implementing regulations.
As discussed in previous advisories, reporting companies formed before January 1, 2024 were required to file their beneficial ownership report before January 1, 2025 and reporting companies formed after January 1, 2024 were subject to 90-day filing deadlines from the date of formation. Reporting companies who previously filed reports with FinCEN had ongoing obligations to report changes in beneficial ownership information. Texas Top Cop, in effect, halts all such reporting obligations, at least temporarily.
One individual and five entities, including the National
Federation of Independent Business with over 300,000 members
nationwide, challenged the CTA on multiple grounds, including
intrusion upon states' rights and Fourth Amendment violations
for compelling the disclosure of private information. Judge Mazzant
acknowledged the CTA's admirable ends but forcefully rejected
arguments by the U.S. Government that the Commerce Clause and the
Necessary and Proper Clause of the U.S. Constitution authorized the
CTA. Holding that the "the CTA is likely unconstitutional as
outside of Congress's power", the Court concluded that the
plaintiffs fulfilled their burden to show a "substantial
likelihood of success" on the merits of their Tenth Amendment
challenge to the legislation and imposed an injunction against the
CTA's enforcement.
It is important to note that the nationwide injunction imposed in
this case is not a final judgment and could be lifted, which would
reinstate the obligation of reporting companies to comply with the
CTA. There is also further uncertainty about the survival of the
CTA given the change of leadership in Washington, D.C. come January
2025. To the extent the temporary injunction is lifted it is
unclear whether the filing deadlines would be extended. As of this
writing, FinCEN had not issued a statement on the injunction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
