— This ruling has been updated. Click here to see the new update. —
A Federal District Court in Texas has ruled that the Corporate Transparency Act (CTA) is probably unconstitutional and issued a nationwide preliminary injunction that precludes its enforcement. Click here for a copy of the decision of Judge Amos Mazzant in Texas Top Cop Gun Shop, Inc. v. Merrick Garland, Attorney General of the United States, Case No. 4:24-CV-478 (E.D. Tex).
Congress enacted the CTA as an anti-money laundering effort, and the Act requires most small businesses to disclose beneficial ownership information (including social security numbers and photo IDs) to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury. Entities formed after January 1, 2024 are subject to the disclosure requirements when formed, and covered entities formed prior to January 1, 2024 have until December 31, 2024 to submit their disclosure. Judge Mazzant’s Top Cop order suspends all such requirements.
Judge Mazzant’s court is part of the United States District Court for the Eastern District of Texas. The order is preliminary and subject to appeal. Following a trial (not yet scheduled), Judge Mazzant could lift the restrictions or make them permanent. If any of the litigants appeal his order, the appeal will go before the United States Court of Appeals for the Fifth Circuit – a court that is known generally for being conservative and pro-business.
It seems likely that the CTA will be blocked through January 1, 2025 and possibly beyond. The situation is fluid, however, and we will continue to monitor it for further developments.
Given that Judge Mazzant’s decision is temporary and subject to appeal, compliance with the CTA is currently a judgment call: business owners must consider whether to comply with the law on the assumption that the situation is too uncertain and the December 31, 2024 deadline might be reinstated, or rely on the Federal court’s decision and hold on CTA compliance until further guidance is issued.
Individual circumstances and risk tolerance may inform your decision, and we are available to discuss your circumstances and confirm the approach you want to take. We will continue to keep you informed on litigation outcomes and shifts in policies.
In the meantime, following are some considerations for business owners:
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- Consider a Pause in Filing and Efforts to Comply – As a result of the decision, no business is currently required to comply. However, additional guidance or court decisions could change this outcome.
- Consult with Legal Counsel – Businesses should evaluate the risk and exposure of failure to comply If the injunction is lifted or enforcement resumes. Conversely, there is a risk of unnecessary expense and burden of compliance if the injunction continues.
- Consider Whether to Proceed with Filing and/or Prepare for a Change in Decision – Because December 31, 2024 was the compliance deadline, if the injunction is overturned, there is a possibility that businesses may have to rush to comply with the existing or a new deadline in a shortened timeframe.
