In a broad and significant decision, on December 3, 2024, Federal Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction preventing the federal government from enforcement of the Corporate Transparency Act (the “CTA”).
In Texas Top Cop Shop, Inc. v. Garland (“Texas Top Cop Shop”), Judge Mazzant ruled that the CTA filing requirements, are “a drastic two-fold departure from history.” First, the court held that the CTA was a “Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States.” Second, the CTA directly preempted a key feature of corporate formation under States’ laws: anonymity. The court pronounced the CTA as an “Orwellian statute” that violated the Constitution’s federal system. Ultimately, it was held that the federal government could not reconcile the CTA’s regulatory requirements with the Constitution, providing no “tenable theory that the CTA falls within Congress’s power” The court viewed the law as likely to not pass constitutional muster, and the injunction was necessary pending further appeal.
At the time of this blog publishing, an official response from FinCen, the enforcement agency of the CTA, is still pending. The Department of the Treasury on behalf of FinCen has not yet appealed the court’s decision.
So what should companies subject to the CTA do now? First, they must recognize that the CTA is still on the books as the law of the land and is only held in abeyance preliminarily due to the court’s order. At some point, an appellate court could grant a stay of this injunction or reverse the decision entirely. Another court could issue an inconsistent decision creating further conflict in interpretation requiring appellate or Supreme Court review. The new Congress could revisit and change the law. The timing of any such action is unclear, including whether it will be addressed prior to the December 31, 2024 CTA Filing deadline. In the face of this uncertainty, until there is a final resolution or FinCen action, we recommend that companies continue to prepare to comply with the law, with an appreciation that the strict deadlines (especially the pending December 31, 2024 deadline for pre-2024 entity filing), may be deferred even if not permanently removed. Companies should address with counsel whether appropriate to file at any particular time before the deadline. Comparable state regulations continue to be in effect. We are continuing to monitor developments. For more information on the Corporate Transparency Act, please click here.
