Written By: Oded Kadosh, Guy Milhalter and Austin Ochoa
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction blocking enforcement of the Corporate Transparency Act (CTA) and its beneficial ownership reporting requirements. The court found that the CTA “appears likely unconstitutional,” halting its implementation and relieving businesses from the reporting requirements until further notice. View the court’s opinion and order here.
The CTA aimed to combat illicit activities like money laundering and tax fraud by requiring non-exempt companies to disclose detailed beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network. However, the plaintiffs argued that the CTA exceeded Congress’s authority under the Commerce Clause by attempting to regulate entities solely based on their existence as state-created entities, regardless of their involvement in interstate commerce. The court agreed, describing the CTA as a “quasi-Orwellian statute” that improperly intrudes into areas traditionally governed by the states, undermining the constitutional principle of federalism.
The court further criticized the law’s elimination of corporate anonymity, stating that “the CTA ends a feature of corporate formation as designed by various States—anonymity.” This dual departure from historical norms—federal intrusion into state authority and the dismantling of corporate anonymity—combined with the severe penalties for non-compliance (including fines of up to $10,000 and imprisonment of up to two years), led the court to conclude that the CTA likely violates constitutional principles and should be enjoined.
Per the court’s order, “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
If you have any questions about CTA compliance, please don’t hesitate to reach out.
