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On December 3, 2024, mere weeks before the compliance deadline for all existing reporting companies, the U.S. District Court for the Eastern District of Texas issued a nationwide, preliminary injunction against the enforcement of the Corporate Transparency Act (CTA). The CTA, which became effective January 1, 2024, has garnered attention among business owners, accountants, attorneys and many others since its enactment. In a previous article, we discussed the CTA’s basic requirements and what it entails for business owners. Many business owners have been confused by the CTA’s scope, applicability of exemptions from the reporting obligation, and how to determine beneficial owners of a reporting company. Countless others remain unaware of the CTA and its potentially severe penalties in the event of a willful violation, including monetary penalties and even imprisonment. As of early November, a FinCEN representative stated that just over 6.5 million filings, of an expected approximately 32.6 million, had been received.
Deeming the CTA a “quasi-Orwellian” statute, Judge Mazzant enjoined enforcement of the CTA and its implementing regulations because they are “likely unconstitutional.” This preliminary injunction temporarily halts enforcement of the CTA with respect to the pending compliance deadlines pending any further determinations to the contrary.
Although the court’s order is noteworthy, it could be vacated at any time. Reporting companies and their beneficial owners should continue to monitor the development of the case and the injunction. That said, reporting companies should consider voluntarily submitting the initial report or at least be prepared to file the initial report before year-end, as planned.
For questions, please contact authors Cole Henderson, MaryScott Polk Timmis or a member of the CTA Team.