Enforcement of the CTA Under a Nationwide Preliminary Injunction – Enforcement of Reporting Deadlines Put on Hold
In a significant development, the U.S. District Court for the Eastern District of Texas has issued a preliminary injunction halting enforcement of the Corporate Transparency Act (CTA). This decision not only delays the CTA’s January 1, 2025, compliance deadline but also raises constitutional questions about the CTA and its requirements.
The U.S. District Court for the Eastern District of Texas issued a preliminary injunction in favor of the plaintiffs in the case of Texas Top Cop Shop, Inc. et al. vs. Merrick Garland, Attorney General of the United States, et. al.). The Court stated in its holding that “…the CTA (“Corporate Transparency Act”) and Reporting Rule [implementing regulations] to be likely unconstitutional for purposes of a preliminary injunction. It has not made an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.” Unlike other courts, this District Court held that the preliminary injunction not only applies to the plaintiffs in this case but applies nationwide and enjoined the enforcement of the CTA reporting deadline of January 1, 2025, and the implementing regulations.
The Court stated that “…the CTA, (31 U.S.C. § 5336) is hereby enjoined. Enforcement of the Reporting Rule (31 C.F.R. 1010.380, the implementing regulations) [are] also hereby enjoined, and the compliance deadline is stayed under § 705 of the Administrative Procedures Act (“APA”). Neither the CTA nor its enforcement regulations may be enforced, and “reporting companies” as defined in the CTA, need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
Please note that this is a preliminary injunction only, and we urge clients who own or control companies and other entities to determine if their enterprise is a “reporting company” under the CTA and keep up with the news, additional court determinations, and updates in this and other cases which could modify or change this order. There will be more legal reporting on this in the near future, especially as a new administration takes charge in Washington on January 20th.
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If you have questions about what your business needs to do and what steps to take with regard to CTA reporting, please contact our Transactions Team at Sands Anderson and we would be glad to help you.
