Nationwide Injunction Halts Corporate Transparency Act Reporting Requirements: For now.

Texas Top Cop Shop v. Garland, et al. (case 4:24-cv-00478)

On December 3, 2024, Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas granted a preliminary injunctionnationwide that stops the Federal government from enforcing the Corporate Transparency Act (“CTA”). Even when this is not a final determination, its immediate effect relieves businesses from the reporting responsibilities due on January 1, 2025, and it also enjoined the Beneficial Ownership Information (“BOI”) reporting requirements with the Financial Crimes Enforcement Network (FinCEN).

In the case, six plaintiffs (one private individual and five entities) requested relief only for themselves arguing that Congress overstepped its authority by demanding that businesses disclose their ownership details even if they don’t engage in interstate or foreign commerce. The judge emphasized that simply being a corporation doesn’t grant Congress unlimited power to regulate every aspect of a business’s operations and decided to issue a nationwide injunction, granting further relief than the one requested. The court determined that the CTA and its reporting requirements likely violate constitutional protections and exceed Congress’s authority. While not a final judgment, the decision stays the compliance deadlines until further notice even when it might be reversed and the consequences for not reporting are severe, both civil and criminal.

This isn’t the first time the CTA has faced challenges. Earlier in 2024, a federal court in Alabama also ruled the law unconstitutional, though that decision was limited to the plaintiffs in the case. The Texas court’s ruling, however, applies nationwide, making it a landmark moment in the fight over corporate transparency. If the injunction holds, it could reshape the future of corporate transparency laws and set limits on Congress’s regulatory power.

What is the legal effect on businesses and companies nationwide:

The CTA requires most U.S. companies to disclose personal information about their beneficial owners to combat money laundering and other illicit activities. For now, the court’s ruling suspends these obligations, providing businesses a reprieve.

The preliminary injunction is temporary; therefore, legal challenges could reinstate compliance requirements at any time.

Companies should remain vigilant and prepared to comply if the enforcement freeze is lifted.

The preliminary injunction applies across the U.S.

What to expect:

• An appeal to the Fifth Circuit Court of Appeals should be anticipated, and further action by the U.S. Supreme Court or Congress could follow. In any case, both, Congress and FinCEN may take additional action before the end of the year.

• Companies should stay informed as these legal and legislative developments unfold, especially given the severe penalties for noncompliance if the reporting requirements are reinstated.

What this Means:

As of today, Dec. 4, 2024, enterprises do NOT have to file their BOI reports by Jan. 1, 2025. As of today, this applies to ALL enterprises. While this is significant, MZLS is cautioning that things are continually changing when it comes to the BOI reporting. We will continue to keep you updated.

Contact MZLS for Assistance:

Businesses should stay informed as the legal battle over the CTA unfolds. Given that a new Congress and administration will take office in the coming year, and the civil and criminal penalties for noncompliance can be severe, reporting companies and their beneficial owners should still be prepared to comply with the reporting rule before January 1, 2025, deadline in case further judicial or legislative developments revive the requirement to comply. To contact MZLS click here.

This insight was prepared by Crystal Acevedo.