We want to update our pro bono volunteers and clients, particularly small businesses, on a recent court decision that may impact your obligations under the Corporate Transparency Act (CTA). On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a ruling in Texas Top Cop Shop, Inc. et al. v. Garland et al., temporarily blocking the enforcement of the CTA and its related reporting requirements. The case was brought by an individual and five entities, one of which represents about 300,000 small business members, challenging the constitutionality of the CTA.
To recap, the CTA was passed in 2021 to address illegal activities concealed by corporate anonymity. The law requires businesses registered under state laws to report detailed ownership information to the federal government, with severe penalties for non-compliance. The reporting requirements, which took effect in January 2024, mandate that businesses formed before that date file reports by January 2025, while businesses formed after January 2024 must file within 30 to 90 days of formation. The plaintiffs argued that the CTA violates several constitutional rights, including states’ rights, free speech, and privacy.
The court found that the CTA may exceed Congress’s authority and be unconstitutional. Since the reporting requirements are tied to the CTA, they likely face the same fate. As a result, the court issued a preliminary injunction, meaning businesses are not currently required to comply with the January 2025 reporting deadline, and enforcement of the CTA is paused until further notice. However, the court’s ruling is not final, and the government may appeal it. If you have questions about how this affects your business or clients, we recommend consulting legal counsel.
We will continue to monitor the situation and update you as more information becomes available.
You may find the full opinion here.
Please note that this alert is for informational purposes only and does not constitute legal advice.