On December 3, 2024, the U.S. District Court for the Eastern District of Texas declared the Corporate Transparency Act unenforceable and issued a nationwide preliminary injunction,[1] which effectively blocks the law from going into effect. As a reminder, the CTA was signed into law in 2023 and was scheduled to take effect in 2024. The law was enacted as part of the Anti-Money Laundering Act of 2020 and was designed to impede corruption via the transfer or hiding of illicit money in corporate schemes that otherwise appear to be legitimate business ventures. Because the CTA requires a new government reporting requirement for individuals who are the actual owners of the small business, the law aimed to root out those who sought to evade taxes or hide wealth behind their corporate shields.
Earlier this year on March 1, 2024, another federal court in Alabama had declared the CTA to be unconstitutional, suspending its enforcement temporarily but only against the plaintiffs involved in that case. That is why at the time, it was still recommended that all other reporting companies (who were not plaintiffs in the case) file their Beneficial Ownership Information report (“BOIR”) and continue to comply with the law. This was particularly true given the agency charged with BOIR compliance – the U.S. Treasury Department’s Financial Crimes Enforcement Networks (FinCEN) – had stated its intent to continue to enforce the law.
The Texas court’s decision, however, holds the CTA unenforceable against any reporting business. As a result, the decision impacts all 32 million, approximately, small businesses who would otherwise be required to comply with the CTA by the deadline coming up on December 31, 2024. The nationwide preliminary injunction the court issued effectively renders the law mute, meaning that no potential reporting companies are technically required to comply with the CTA, although a company could still file a BOIR with FinCEN. It’s unclear whether the decision will be appealed by the government at this time.
If you are interested in learning more about the CTA and whether your business may want to file a BOIR, please contact Rincker Law, PLLC at assistant@rinckerlaw.com.
[1] Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-478 (E.D. Texas Dec. 3, 2024).