AM Law Alert: Enforcement of Corporate Transparency Act Enjoined by Texas Federal Court – Future of Act Uncertain
On December 3, 2024, District Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas, Sherman Division, issued a nationwide preliminary injunction against the Department of Justice in Texas Top Cop Shop, Inc., et. al., v. Merrick Garland, Attorney General of the United States, et. al., holding that the Corporate Transparency Act (CTA) and its accompanying beneficial ownership reporting requirements to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) are “likely unconstitutional.” The Court specified that it has “not made an affirmative finding” that the CTA is contrary to law or that it amounts to a violation of the Constitution. However, pursuant to the Court’s preliminary injunction, enforcement of the CTA and the beneficial ownership reporting deadlines to FinCEN are, at this time, enjoined.
It’s important to note that the previous injunction against enforcement of the CTA, issued on March 1, 2024, by the U.S. District Court for the Northern District of Alabama, only applied to the specific plaintiff in that case, the National Small Business Association, a holding that has since been appealed to the Eleventh Circuit. Judge Mazzant’s ruling, however, applies nationwide and is not limited to any one plaintiff, which makes such a holding much more sweeping in its implications.
We anticipate that the U.S. Treasury Department and Department of Justice will issue a public statement in the coming days to clarify their intentions moving forward, but we suspect that an appeal of the nationwide injunction is likely.
For now, entities do not need to comply with the CTA’s requirements and the upcoming January 1, 2025, reporting deadline. Because this injunction isn’t the final decision on the matter, we are carefully monitoring all developments and will be sure to alert you of any changes in this regard.
For more information, please contact Conner Bourne.
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