The decision, handed down by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland (No. 4:24-CV-478), temporarily halts the application of the Corporate Transparency Act and its accompanying beneficial ownership information (BOI) reporting requirements.
A federal court has issued a significant injunction against the enforcement of the Corporate Transparency Act (CTA), deeming it likely unconstitutional. The decision, handed down by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland (No. 4:24-CV-478), temporarily halts the application of the CTA and its accompanying beneficial ownership information (BOI) reporting requirements. This ruling has broad implications, as it suspends enforcement on a nationwide scale pending further court orders.
Key Findings and Legal Basis of the Injunction
The court’s analysis sharply criticized the Corporate Transparency Act, describing it as “quasi-Orwellian” and beyond Congress’s constitutional powers. The judge ruled that the CTA likely violates the Constitution by exceeding Congress’s authority under the Commerce Clause and the Necessary and Proper Clause.
On the Commerce Clause, the court asserted that the CTA functions as a law enforcement tool rather than a regulation of commerce, stating, “The CTA is a law enforcement tool — not an instrument calibrated to protect commerce; an exercise of police power, rather than a regulation of an activity which might impair commerce among the several states. This the Commerce Clause will not tolerate.”
The Necessary and Proper Clause argument was similarly dismissed. The court found that the CTA, which requires reporting on the anonymous ownership of domestic businesses, does not relate to foreign affairs or national security. The ruling stated, “The CTA, by its very language, does not regulate any issue of foreign affairs. It regulates a domestic issue: anonymous existence of companies registered to do business in a U.S. state and their potential conduct.”
While the plaintiffs also argued that the law infringes upon First and Fourth Amendment rights, the court chose not to address those claims in its decision.
National Scope of the Injunction
The court’s order applies across the United States, citing the extent of the constitutional issues raised. Although nationwide injunctions are often contentious, the judge emphasized the broad impact of the constitutional violations. This sweeping injunction effectively suspends the Jan. 1, 2025, deadline for BOI reporting requirements and spares reporting companies from compliance until further judicial resolution.
Background on the Corporate Transparency Act
Enacted in 2021 as part of an anti-money-laundering initiative, the CTA requires reporting companies to disclose detailed information about their beneficial owners. Newly formed entities are also required to provide information about “applicants,” defined as individuals involved in their incorporation process. Noncompliance carries severe penalties, including fines of up to $10,000, imprisonment for up to two years, and daily penalties of $591 for willful violations. Unauthorized disclosures are similarly penalized.
Industry and Legal Reactions
The injunction has drawn strong reactions from small business advocates and professional organizations. Beth Milito, executive director of the National Federation of Independent Business (NFIB) Legal Center, which represents one of the largest plaintiff groups, celebrated the ruling as “a massive first step.” She likened the legal battle to a “David and Goliath fight” and described the outcome as a decisive early victory. The NFIB, representing about 300,000 members, was a central party in the case, advocating against what it views as an overreaching and burdensome regulatory framework.
The American Institute of Certified Public Accountants (AICPA) issued a statement emphasizing the importance of preparation despite the injunction. “Under the injunction, FinCEN is barred from enforcing BOI filing requirements while the case is pending,” the statement noted. However, the AICPA urged CPAs assisting clients with BOI compliance to proactively gather necessary information in case the injunction is reversed. “Best practices dictate that at a minimum those assisting clients with BOI report filings gather the required information from the clients and are prepared to file the BOI report if the injunction is lifted. While it is unlikely that the injunction will be lifted prior to the final outcome of the proceedings, we advise being prepared in the event that there is a reversal,” the organization added.
Similarly, Melanie Lauridsen, vice president of Tax Policy & Advocacy at AICPA, highlighted the potential relief for small businesses. “The AICPA understands the confusion and anxiety that business owners have struggled with regarding the BOI reporting requirement. We believe that the injunction … is applicable nationwide to all small businesses,” she said, adding that the organization would continue advocating for clarity and relief on behalf of business owners.
Todd McCracken, president and CEO of the National Small Business Association (NSBA), another prominent critic of the CTA, also praised the decision. In a statement on the NSBA’s website, he described the ruling as “a huge relief to the millions of small business owners across the country who were facing a wildly complex regulatory regime.”
Government Response and Next Steps
The Financial Crimes Enforcement Network (FinCEN), the agency tasked with enforcing the CTA, is currently reviewing the ruling. A spokesperson noted that other courts have previously denied similar injunction requests, signaling a potential avenue for appeal. On December 5, the Department of Justice filed a notice of appeal, which could send the case to the Fifth Circuit. The preliminary injunction is expected to remain in place throughout the appeals process unless overturned by a higher court.
Implications for the Future
As legal battles over the CTA unfold, uncertainty remains for businesses and advisors alike. The ruling underscores the constitutional and regulatory challenges of implementing sweeping transparency measures in a complex business environment. For now, the court’s decision offers temporary relief to businesses that would otherwise face imminent compliance deadlines and steep penalties. However, the ultimate resolution will depend on further judicial review and potential legislative adjustments.
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