A Texas federal court has temporarily blocked the implementation of the Corporate Transparency Act (CTA) nationwide. The decision, issued by Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas, comes less than a month before millions of businesses were expected to comply with the new ownership reporting requirements.
UPDATE: Impact of Ongoing Litigation
In light of a recent federal court order, as of December 27, 2024, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Understanding the Corporate Transparency Act
The CTA was passed in 2021 to combat shell companies set up for money laundering, financing of terrorism, fraudulent purposes, and other illicit practices.
The law would have required an estimated 32.6 million existing business entities to disclose their beneficial owners (defined as an owner with substantial control over the entity or a 25-percent ownership interest) to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) by 2025.
The primary goal of the legislation was to combat the use of anonymous shell companies for money laundering, terrorism financing, and other illicit activities. By requiring companies to reveal their true owners, lawmakers hoped to peel back the layers of anonymity that often enable financial crimes.
The Legal Challenge
The lawsuit challenging the CTA was filed on May 28, 2024, by a family-run firearms and tactical gear retailer, Texas Top Cop Shop Inc., joined by the Libertarian Party of Mississippi. Their lawsuit argued that the CTA exceeded Congress's constitutional authority to regulate interstate and foreign commerce, as it applied to all incorporated entities regardless of their commercial activity.
Judge Mazzant agreed with the plaintiffs, describing the CTA as a "flanking, quasi-Orwellian statute” with concerning implications on the structure of our government. The court found that while Congress may have the power to regulate anonymous corporate operations, the Commerce Clause cannot be used to compel information disclosure for law enforcement purposes at this scale.
Immediate Impact and Implications of the Preliminary Injunction Against the CTA
Per the court order, “...reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court." Any preparations for filing your report can effectively be put on hold.
That said, businesses should remain alert for potential appeals or modifications to the law.
What If I Already Filed a Beneficial Ownership Information (BOI) Report to FinCEN?
The injunction blocks enforcement of the CTA nationwide but doesn't specifically address previously filed reports. The Treasury Department may provide specific instructions or information once the legal proceedings reach their final outcome.
In the meantime, keep copies of previously filed reports, document when and what was filed, and watch FinCEN or this website for further guidance.
What’s Next for the CTA?
The Department of Justice will likely appeal the preliminary injunction before a higher court, a process that could take many months to conclude.
At the end of the lawsuit, after all appeals are heard, the court could enter a permanent injunction, blocking the government from enforcing the CTA on a permanent basis.
In the meantime, business owners are not obligated to comply with the CTA’s reporting requirements, pending further court action.
