Federal District Court Issues Temporary Injunction Against Corporate Transparency Act Nationwide

The Eastern District of Texas issued a nationwide preliminary injunction on December 3, 2024, pausing the reporting obligations imposed by the Corporate Transparency Act (CTA). The decision, Texas Top Cop Shop, Inc. v. Garland, comes shortly before a significant reporting deadline on January 1, 2025 – the date on which companies in existence as of January 1, 2024, must disclose beneficial ownership information (BOI) to the U.S Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). In this particular case, the District Court agreed with the plaintiffs that the CTA is likely unconstitutional on several grounds.

The District Court enjoined the CTA and its regulations, stating that “[n]either may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” Furthermore, due to the CTA’s broad application, the District Court concluded that “the injunction should apply nationwide.” Although this is a preliminary injunction and the District Court will hold a later hearing on the merits to determine the constitutionality of the CTA, the District Court asserted in its preliminary order that the CTA “is likely unconstitutional as outside of Congress’s power.” Any appeal of a final order granting an injunction would be appealed to the Fifth Circuit.

Though the District Court indicates that the CTA is likely unenforceable, business owners should exercise caution in pausing their compliance efforts. The preliminary injunction could be lifted after a hearing on the merits by the District Court or through further federal legislative action. Rhoades McKee encourages business owners to keep themselves apprised of further changes to the reporting requirements. Please contact any member of the Rhoades McKee Business & Corporate Law Team if you have questions regarding your obligation to comply with the requirements of the CTA.