On December 3, 2024, a Texas-based federal court issued a sweeping order prohibiting the federal government from enforcing the Corporate Transparency Act (CTA) anywhere in the country. Texas Top Cop Shop, Inc., et al. v. Garland et al.Case No. 4:24-cv-478 (ED Tex.). The court ruled that the CTA, which would have required an estimated 32.5 million companies in the United States starting January 1, 2024, to submit sensitive information about their “beneficial owners” (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025 – is likely unconstitutional and that its implementation would cause irreparable harm to reporting entities if they were forced to comply. The court ordered nationwide enforcement of the CTA, specifically stating that neither the law nor related regulations may be enforced and that “reporting entities are not required to comply with the CTA’s January 1, 2025 BOI reporting deadline(.)”

The court found that Congress had overstepped its legislative authority in passing the CTA, which the court described as “quasi-Orwellian.” According to the court, upholding the CTA and its requirement that most companies incorporated or registered under state law continually report information to the federal government would “sanction a new form of federal power” that would “endanger the fabric of . . .” . Our system of federalism.” The Court viewed the CTA as a dangerous precedent and stated: “If the Court were to authorize such an expansion of legislative power today, there is no telling how Congress would control corporations tomorrow.” The fact that a “The fact that a company is a corporation does not give Congress ultimate power to regulate it in all aspects – particularly through the CTA (.)” The court also found that reporting companies’ obligation to comply with the CTA violates their constitutional Rights significantly endangered. Given the CTA’s constitutional deficiencies and threatened harm, the court ordered the federal government to enforce it until further order from the court.

Key insights

Unlike other court decisions that have examined the constitutionality of the CTA, Texas Top Cop Shop The CTA specifically ordered the CTA nationwide, stating that “(a) nationwide injunction is appropriate in this case.” This means that “(existing) reporting entities are not required to comply with the CTA’s January 1, 2025 BOI reporting deadline,” and that FinCEN cannot enforce any of the CTA’s penalties for willful noncompliance against companies or individuals.

In addition to existing companies whose reporting deadline was just weeks away, the CTA requires companies incorporated or registered in the United States in 2024 to file a BOI report with FinCEN within 90 days of their incorporation or registration. This time frame shortens to 30 days starting January 1, 2025. FinCEN estimates that 5 million companies are formed or registered in the United States each year and would be covered. As of last month, more than 8 million BOI reports were reportedly submitted to FinCEN, most of which are believed to have been filed by newly formed reporting firms. The court’s order orders enforcement of the entire CTA.

The court’s decision likely will not be the final word on the enforceability of the CTA. Initially, the court merely issued an interim injunction, which it could theoretically reconsider at some point in the future. The more likely next step, however, is for the government to immediately appeal this decision to the United States Court of Appeals for the Fifth Circuit. Another appeal could be made to the United States Supreme Court. But unless a court expressly dissolves this Texas Top Cop Shop With the injunction, companies are not required to comply with the reporting requirements of the CTA.