News and Events
Corporate Transparency Act: Nationwide Injunction Pauses Federal Enforcement—What It Means for Your Business
On December 3, 2024, Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction halting federal enforcement of the Corporate Transparency Act (CTA). This ruling—in Texas Top Cop Shop, Inc. v. Garland—has significant implications for entities subject to the CTA's reporting requirements.
The Decision
Judge Mazzant's ruling is rooted in two main arguments:
- Federal Overreach into State Matters: The court held that the CTA represents a "drastic departure from history" by imposing federal oversight on corporate formation, traditionally a state-regulated domain.
- Violation of Anonymity: The CTA's requirements were seen as infringing on the longstanding principle of corporate anonymity under state law. The judge characterized the CTA as an “Orwellian statute” that clashes with constitutional protections, asserting that Congress lacked authority to enact it.
While the injunction prevents enforcement for now, this is a preliminary measure, not a final determination. The Department of Treasury's Financial Crimes Enforcement Network (FinCEN) has not yet appealed the ruling, leaving businesses in a state of legal limbo.
Why This Matters
The CTA's reporting requirements—set to impose strict disclosure obligations—are temporarily on hold. However, businesses should not assume that these requirements will not be enforced in the future, and would be well served to be prepared to comply with these reporting requirements in the event they are reinstated.
Note:
- Uncertainty Remains: The injunction is subject to appeal, and higher courts could overturn it. Challenges to the CTA are pending in other jurisdictions. Inconsistent rulings from other jurisdictions could complicate the legal landscape.
- Filing Deadlines Still Loom: The December 31, 2024 deadline for pre-2024 entities remains on the books as does the deadline for newly formed entities. Businesses should be prepared to meet compliance requirements if the injunction is lifted. The penalties for noncompliance are significant and whether and when they may be tolled or enforced is unknown.
- State-Level Regulations: Many states have their own corporate disclosure requirements, which are not affected by this ruling.
Next Steps
In light of these developments, entities should:
- Stay Prepared: Continue organizing the information required under the CTA in case the injunction is overturned.
- Monitor Developments: Keep an eye on further rulings, FinCEN's response, and potential legislative changes.
- Consult Counsel: Work with legal advisors to determine whether early compliance efforts might still be beneficial.
The evolving legal environment makes proactive planning essential.
Please contact us to discuss your specific obligations under the Corporate Transparency Act and what steps to take to mitigate risk.
