Corporate Transparency Act Blocked by Federal Court

Corporate Transparency Act (CTA) Enforcement Temporarily Blocked by Federal Court

A significant legal development has emerged that could impact businesses across the United States. On December 3, 2024, U.S. District Judge Amos Mazzant of the Eastern District of Texas issued a preliminary injunction, temporarily halting the enforcement of the Corporate Transparency Act (CTA). This decision has far-reaching implications for businesses, particularly those required to file Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN).

Read the court documents here > Texas Top Cop Shop, INC, ET AL., v. Merrick Garland, AG U.S. ET AL.,

What is the Corporate Transparency Act (CTA)?

Enacted by Congress in 2021, the CTA is a federal law designed to enhance transparency in corporate ownership. It mandates that certain types of businesses, including corporations, limited liability companies (LLCs), and limited partnerships, report information about their beneficial owners to FinCEN. Beneficial owners are individuals who directly or indirectly own or control 25% or more of a company.

The primary objective of the CTA is to combat illicit finance, including money laundering, terrorist financing, and tax evasion, by making it more difficult for criminals to hide their identities behind opaque corporate structures.

Why Was the CTA Enforcement Blocked?

A group of plaintiffs, including individuals and businesses, filed a lawsuit challenging the constitutionality of the CTA. They argued that the law:

• Violates the Tenth Amendment: The plaintiffs contend that the CTA exceeds Congress's authority under the Commerce Clause and intrudes on the powers reserved to the states.
• Infringes on First Amendment Rights: They argue that the requirement to disclose personal information, such as addresses and dates of birth, constitutes a violation of their First Amendment rights.
• Imposes Unreasonable Search and Seizure: The plaintiffs claim that the CTA's reporting requirements constitute an unreasonable search and seizure under the Fourth Amendment.

Judge Mazzant agreed with the plaintiffs' arguments, finding that they had demonstrated a likelihood of success on the merits of their constitutional claims. The court expressed concerns about the potential overreach of federal power and the impact of the CTA on individual privacy rights.

What Should Businesses Do Now?

In light of the preliminary injunction, businesses are temporarily relieved of the obligation to file BOI with FinCEN. However, it's important to note that this is a temporary reprieve. The government is expected to appeal the decision, and the ultimate fate of the CTA remains uncertain.

Businesses should continue to monitor the legal developments closely. If the injunction is overturned, they may need to quickly comply with the BOI filing requirements. It is advisable to consult with legal counsel to understand the specific implications of the CTA and the injunction for their business.

As the legal battle over the CTA unfolds, businesses should be prepared to adapt to potential changes in regulatory requirements.

UPDATE: 12/13/2024

Beneficial Ownership Information (BOI)  Now Voluntary

Following the recent ruling by Texas Federal Judge Amos Mazzant, The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) posted an alert on their webpage stating that Beneficial Ownership Information will be voluntary, while ongoing litigation continues.