Tax Byte
Corporate Transparency Act Enforcement Blocked — For Now
A federal district court has issued a nationwide injunction against the Corporate Transparency Act (CTA), finding the law “likely unconstitutional.” The ruling in Texas Top Cop Shop, Inc. vs. Garland, filed on December 3, 2024, effectively suspends the beneficial ownership information (BOI) reporting requirements that were set to take effect on January 1, 2025. The court’s order provides immediate relief to reporting companies, halting the enforcement of the CTA and its accompanying regulations pending further judicial review. This preliminary injunction represents a critical moment in the ongoing legal scrutiny of federal regulatory mechanisms, potentially signaling broader implications for corporate disclosure mandates.
A Judicial Pushback Against Federal Oversight
On December 3, 2024, U.S. District Judge Amos Mazzant delivered a resounding judicial rebuke to the CTA, issuing a nationwide preliminary injunction that halts the law’s enforcement. The ruling, emerging from the Eastern District of Texas, challenges the federal government’s authority to mandate comprehensive corporate ownership disclosures.
The CTA, originally enacted in early 2021 as part of an annual defense spending bill, was designed to combat money laundering by requiring corporations and limited liability companies to report beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Supporters argued the legislation would close critical loopholes that allowed criminals to establish anonymous corporate entities.
However, Judge Mazzant’s ruling suggests a different narrative. Describing the law as an “unprecedented” and “quasi-Orwellian” attempt to legislate in areas traditionally governed by state law, the court found the CTA “likely unconstitutional.” Mazzant commented: “Despite attempting to reconcile the CTA with the Constitution at every turn, the Government is unable to provide the Court with any tenable theory that the CTA falls within Congress’s power.” According to him, Congress had overstepped its constitutional bounds, potentially violating states’ rights under the Tenth Amendment.
Implications and Ongoing Legal Battles
This isn’t the first judicial challenge to the CTA. In March, an Alabama federal judge similarly questioned the law’s constitutionality, albeit with a narrower injunction. The current nationwide pause means reporting companies are temporarily relieved from the January 1, 2025 compliance deadline.
The litigation landscape remains complex. The ongoing case NBSU v. Yellen, currently pending before the US Court of Appeals for the Eleventh Circuit, suggests that the CTA’s ultimate fate is far from settled. Legal experts recommend that businesses remain vigilant, continuing to consider the potential implications of the act even as its enforcement remains suspended.
For now, the CTA sits in legal limbo—a testament to the delicate balance between federal regulatory ambitions and state-level governance.