On December 3, 2024, a Texas federal district court issued a nationwide preliminary injunction temporarily blocking the enforcement of the Corporate Transparency Act (CTA) and its requirement to report the beneficial owners of reporting companies.
The ruling in Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478, effectively brings the CTA’s requirements to a standstill, only weeks before the January 1, 2025 compliance deadline.
The Court’s Decision
In Texas Top Cop Shop, the Court held that Congress overstepped constitutional boundaries, and the CTA disproportionately burdens small businesses. While other prior district court rulings, including NSBU v. Yellen, found similar constitutional and practical arguments to be credible, the Court’s ruling in Texas Top Cop Shop is not limited to the named plaintiffs in the case. Rather, the Court has suspended the CTA’s obligations on a nationwide scale, which the Court deemed was necessary to provide meaningful relief to the estimated 32.6 million businesses subject to the CTA.
What Happens Next?
For any businesses running full speed ahead toward the year-end CTA deadline, this injunction gives a temporary reprieve and the opportunity to decelerate. The online reporting database for the Financial Crimes Enforcement Network (FinCEN) remains live and is still accepting CTA reports, but businesses that have not yet filed with FinCEN can choose to pause their compliance efforts and delay their filings. Moreover, businesses should consider these next steps as we wait to see how the battle over the CTA unfolds:
- Pay Attention to Legal Developments: Stay updated on the outcome of these court cases, including how appeals play out and any Supreme Court involvement.
- Monitor Administrative Changes: Note the policy shifts we may see when a new Congress and administration take office in the coming year. FinCEN may be directed to review or revise the CTA and reallocate resources away from CTA enforcement.
- Prepare for Potential Compliance: The civil and criminal penalties for noncompliance with the CTA can be severe, so reporting companies should still proactively gather the necessary beneficial ownership information to be adequately prepared to comply with the CTA’s reporting requirements on short notice if further judicial or legislative developments revive compliance obligations or overturn the injunction.
