Court Blocks Corporate Transparency Act

The U.S. District Court for the Eastern District of Texas issued a preliminary injunction Dec. 3 preventing the federal government from enforcing the Corporate Transparency Act and implementing regulations and reporting deadlines.

The CTA, which took effect Jan. 1 this year, requires most companies incorporated in—or operating in the U.S.—to report stakeholder information to the U.S. Treasury Department’s Financial Crimes Enforcement Network.

In issuing the nationwide injunction—which temporarily blocks CTA enforcement—U.S. District Judge Amos Mazzant said the law fell outside of Congress’ powers to regulate interstate and foreign commerce.

“The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially through the CTA, which does not facially regulate commerce,” he wrote in his decision.

Under the act, covered companies formed or registered to do business prior to Jan. 1, 2024 were required to file initial FinCEN reports by Jan. 1, 2025.

Companies formed or registered during 2024 were required to comply with reporting requirements within 90 days, while companies formed or registered after Jan. 1, 2025 had 30 days to comply.

Impact

The CTA created broad beneficial ownership reporting requirements for corporations, limited liability companies, and other business entities created in or registered to do business in the U.S.

Publicly traded corporations, banks, pooled investment vehicles, and large operating businesses that already have significant existing federal reporting obligations are excluded.

The law was expected to impact approximately 32.6 million small and medium-sized businesses in 2024, with Mazzant finding it burdened companies with over $22 billion in compliance costs in its first year.

The day after the ruling, the Connecticut Secretary of the State’s office emailed firms a reminder about the Jan. 1 CTA reporting deadline, noting that the “law applies to most businesses registered with the Connecticut Secretary of the State.”

Given the situation, reporting companies should seek legal counsel regarding compliance with the CTA.

“This notice is provided as a courtesy to businesses registered in the State of Connecticut. All questions must be directed to FinCEN,” the email noted.

“Our staff is unable to answer questions regarding beneficial ownership reporting, including whether your particular business is exempt. ”

While the injunction means—at least for now—that companies do not have to comply with the reporting deadline, any appeal could see it reversed or narrowed.

Given the situation, reporting companies should seek legal counsel regarding compliance with the CTA, including consideration of confidentiality obligations if the choice is made to file with FinCEN while the injunction is in place.