On December 3, 2024, a federal court in Texas issued a landmark ruling prohibiting enforcement of the Corporate Transparency Act (CTA) across the United States. In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.), the court found the CTA likely unconstitutional and enjoined its implementation, relieving an estimated 32.5 million companies from complying with the January 1, 2025, deadline to submit “beneficial ownership information” (BOI) to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
The court’s order declared that the CTA and its regulations could not be enforced nationwide, explicitly stating that “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline.”
Court’s Reasoning
The court held that Congress overstepped its legislative authority in enacting the CTA, labeling the Act’s provisions as “quasi-Orwellian.” It criticized the CTA’s requirement for entities registered under state law to continually disclose information to the federal government, arguing that such a mandate would set a dangerous precedent. The court emphasized:
“If the Court were to sanction such an extension of legislative power today, then there is no telling how Congress would control companies tomorrow. The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially through the CTA.”
The court also concluded that compliance with the CTA would significantly threaten constitutional rights and cause irreparable harm to reporting companies. Consequently, it enjoined the federal government from enforcing the CTA pending further judicial review.
Key Takeaways
Nationwide Injunction
This ruling goes further than prior court decisions on the CTA, which primarily questioned its constitutionality. In this case, the court explicitly halted enforcement of the CTA nationwide, stating:
“A nationwide injunction is appropriate in this case.”
As a result, existing reporting companies are no longer required to comply with the January 1, 2025, BOI reporting deadline, and FinCEN is barred from imposing penalties for willful noncompliance.
Implications for New Entities
Under the CTA, companies created or registered in 2024 were required to file a BOI report within 90 days of formation, with that timeframe shortening to 30 days starting January 1, 2025. FinCEN estimated that roughly 5 million new companies are created annually in the United States, and as of November 2024, over 8 million BOI reports had already been submitted—primarily by newly formed companies. The court’s order halts enforcement of these requirements as well.
What’s Next?
This decision is unlikely to be the final word on the CTA. The court’s ruling is a preliminary injunction, meaning it could be revisited. However, the more immediate likelihood is that the federal government will appeal the decision to the United States Court of Appeals for the Fifth Circuit, with potential escalation to the United States Supreme Court. Unless a higher court overturns the injunction, companies will remain exempt from complying with the CTA’s reporting requirements.
Businesses should monitor further developments closely as legal challenges to the CTA continue. For now, the nationwide injunction provides significant relief from compliance burdens, but the ultimate fate of the CTA remains uncertain.
