The U.S. District Court for the Eastern District of Texas in the case Tex. Top Cop Shop, Inc. v. Garland, Civil Action No. 4:24-CV-478 (E.D. Tex. Dec. 3, 2024) issued a nationwide preliminary injunction on the enforcement of the reporting requirements of the Corporate Transparency Act (CTA) and related regulations. The court determined the law is likely to be unconstitutional as beyond congressional power to regulate foreign and interstate commerce and levy taxes. The ruling was appealed to the U.S. Fifth Circuit Court of Appeals. Initially, a panel of U.S. Fifth Circuit Court of Appeals stayed the injunction. On December 26, 2024, a different panel of the U.S. Fifth Circuit Court of Appeals vacated the stay of the injunction. On January 23, 2025, the Supreme Court stayed the injunction on appeal.
However, FinCEN has issued a statement that compliance is still voluntary given a nation-wide stay of the effective date of the CTA was issued on January 7, 2025 in another case: Smith v. United States Dep’t of the Treasury, Civil Action No. 6:24-cv-336-JDK (E.D. Tex. Jan. 7, 2025). The court similarly determined that the CTA was unconstitutional as beyond congressional power to regulate commerce. To date, that order has not been appealed.
It would be prudent for reporting companies to continue to collect information required to be disclosed on the beneficial ownership information reports. If the injunction is lifted, or the CTA challenges eventually fail on the merits, reporting companies may have to promptly comply.
Related articles: Corporate Transparency Act Enforcement Enjoined Nationwide; Ready or Not: Corporate Transparency Act Compliance is Coming; FinCEN Issues Final Rules for the Corporate Transparency Act Reporting Requirements – Significant Changes Coming to Corporate Reporting for Alaska Companies
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