On December 3, in a preliminary injunction action, the U.S. District Court for the Eastern District of Texas issued an order prohibiting the federal government from enforcing the Corporate Transparency Act (CTA). Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.). 

The court held that the CTA was “likely unconstitutional” and that enforcement of the CTA would cause irreparable harm to companies if forced to comply. The CTA requires over 32.5 million companies to submit information regarding their “beneficial owners,” including a copy of a driver’s license or passport, to the Financial Crimes Enforcement Network (FinCEN), a division of the United States Department of the Treasury, by Jan. 1, 2025. 

The court enjoined the CTA’s enforcement nationwide, stating that the CTA and its related regulations cannot be enforced, and that “reporting companies need not comply with the CTA’s January 1, 2025…reporting deadline.”

The court reasoned that the CTA exceeds Congress’s legislative authority. In the court’s view, upholding the CTA and its requirement for state-created entities to continually disclose information to the federal government is to “rubber-stamp a new form of federal power” that would “threaten the very fabric of our system of federalism.” The court further said that “[if] the Court were to sanction such an extension of legislative power today, then there is no telling how Congress would control companies tomorrow. The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects.”

Because of what the court saw as a lack of constitutional authority and a perceived harm to reporting companies, the court enjoined the federal government from enforcing it pending further order of the courts. While other courts have limited the CTA’s enforcement more narrowly, this decision explicitly enjoins the CTA nationwide, finding that a “nationwide injunction is appropriate.” 

Therefore, while the court’s order stands, reporting companies need not comply with the CTA’s Jan. 1, 2025 reporting deadline and FinCEN cannot enforce any of the CTA’s penalties for noncompliance.

It is unlikely that this week’s court decision will be the end of the controversial CTA. Even if the court orders a permanent injunction, it is expected that the decision will be appealed, and it remains to be seen what position the incoming administration will take in regard to the CTA.