Corporate Transparency Act Halted... For Now

On December 3, Judge Amos L. Mazzant, III, of the U.S. District Court for the Eastern District of Texas, issued a preliminary injunction against enforcement of the Corporate Transparency Act (CTA) and its implementing regulations following a lawsuit brought by Texas Top Cop Shop, Inc., other businesses, and the Libertarian Party of Mississippi. The plaintiffs argued that the CTA exceeds Congress’s authority under the Commerce Clause by requiring disclosure of beneficial ownership from all incorporated entities, regardless of their commercial activities.

As Dykema previously reported, the CTA mandated more than 32.6 million businesses to report ownership information to the Treasury Department’s Financial Crimes Enforcement Network by January 1, 2025, aiming to combat illicit activities like money laundering. However, the Court ruled that Congress cannot use the Commerce Clause to compel disclosures for law enforcement purposes, emphasizing the statute’s overreach and lack of direct connection to regulating commerce. Judge Mazzant criticized the CTA as a “quasi-Orwellian” overstep undermining the constitutional balance of power.

What This Means for You

As a result of this nationwide federal injunction, companies otherwise required to file a beneficial ownership interest (BOI) report are NOT CURRENTLY required to do so.

Next Steps & Key Takeaways

For now, companies are not obligated to comply with the CTA’s reporting requirements. However, the Court’s decision on the CTA’s enforceability is unlikely to be the final word. The Court has issued a preliminary injunction, not permanent. The likely next step is an immediate appeal by the government to the United States Court of Appeals for the Fifth Circuit, with the potential for further appeal to the United States Supreme Court. The government may also request that the Fifth Circuit grant the extraordinary remedy of a stay of the injunction pending appeal. While a decision on an appeal by the government will take much longer and go beyond January 1, 2025, it is possible that a ruling on a stay request could come in December 2024.

• If you have already filed, you have ensured compliance if and when the CTA is reinstated.
• If you haven’t already filed, you may still elect to file in order to ensure compliance if the CTA is reinstated. Alternatively, you may elect to wait until a final judgment or a decision on any stay is rendered, further developments in this case arise, or other related challenges to the CTA occur. If you choose to wait to file, we recommend that you still continue with your preparations for filing and be prepared to file in case any stay order is issued. In any event, we also recommend that you continue to adhere to other CTA requirements, such as obtaining company applicant information for entities formed in 2024 and beyond, as well as reviewing and preparing beneficial ownership information.

For those choosing not to file based on this recent injunction and to await further developments, it is important to understand the potential risks that could occur. Dykema’s CTA Taskforce is closely tracking this case, as well as the dozen other pending cases challenging the constitutionality of the CTA, and will provide updates as they become available. For more information regarding the CTA or how the new developments around the CTA may impact your business, please contact your local Dykema relationship attorney.