On December 3, 2024, the United States District Court for the Eastern District of Texas halted the enforcement of the Corporate Transparency Act (the “CTA”) by granting a nationwide preliminary injunction enjoining the government from enforcing the CTA and its implementing regulations.
In Texas Top Cop Shop, Inc. et al. v. Garland et al., Case No. 4:24-cv-478 (E.D. Tex.), a group of plaintiffs, including the National Federation of Independent Business, Inc., challenged the constitutionality of the CTA, claiming that Congress exceeded its authority under the Tenth Amendment by passing the CTA, and making additional challenges to the CTA under the First, Fourth, and Ninth Amendments to the Constitution. The federal district court judge granted the plaintiffs’ motion for preliminary injunction seeking to enjoin the government from enforcing the CTA while the court determines the merits of the constitutional challenge. The court did not rule on the constitutionality of the CTA in this order, however, the court found that the plaintiffs established a substantial likelihood of success on the merits of their constitutional challenge to the CTA.
While the preliminary injunction remains in place, reporting companies will not be subject to enforcement of the CTA. However, if there is a successful appeal of the order granting the preliminary injunction or the plaintiff’s constitutional challenge to the CTA is unsuccessful on its merits, there is a chance that enforcement of the CTA will be reinstated on an immediate basis. It is ultimately up to the court that grants an order lifting an injunction whether to grant a grace period for compliance or not, but in theory, a court could lift the injunction without a grace period, allowing immediate enforcement of the CTA by FinCEN.
We will continue to monitor the progress of this case and other challenges to the CTA but, for the time being, the CTA appears to be in limbo.
For background to CTA, please read our August 2024 Alert, September 2023 Alert, and July 2022 Alert.
