Texas Federal District Court Issues a Nationwide Preliminary Injunction Against Enforcement of the Corporate Transparency Act

As we have previously reported (here), the CTA requires certain entities to file Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury.

In Texas Top Cop Shop, Inc. v. Garland, the retailer Texas Top Cop Shop, Inc., co-plaintiff small business owners, and the National Federation of Independent Business (“NFIB”) alleged that the CTA exceeded Congress’s powers under the Constitution and requested that the Court enjoin the government from enforcing the CTA and its implementing regulations against the individual plaintiffs in the case and all of NFIB’s members. Unlike the decision in National Small Business United v. Yellen, where the U.S. District Court for the Northern District of Alabama entered a declaratory judgment that the CTA exceeded the Constitution’s limitations on congressional power and enjoined the government from enforcing the CTA only against the individual plaintiffs and the approximately 65,000 members of the National Small Business Association (see our previous discussion), Judge Mazzant’s opinion grants a nationwide preliminary injunction, blocking implementation of the CTA in its entirety.

Similar to what occurred following the Yellen decision, we expect that FinCEN will soon provide guidance on how this injunction will affect CTA compliance. The government may also announce in the coming days whether it intends to appeal Judge Mazzant’s decision. If the government does appeal (or seek reconsideration of Judge Mazzant’s decision), then the preliminary injunction could be vacated, narrowed, or otherwise modified in the near term. It is not yet clear whether any changes to the preliminary injunction would extend the required filing deadlines or would grant relief to companies who pause CTA filings while the preliminary injunction is in effect.

Conclusion

Accordingly, V&E recommends that clients continue to assess the applicability of reporting requirements under the CTA and be prepared to make any required filings when due.

We will continue to monitor developments in the case and will update our clients as appropriate. We also encourage our clients to contact their V&E client coverage teams to discuss ongoing compliance with the CTA.

Disclaimer: This update was prepared as of December 5, 2024, and is subject to change as further guidance on the CTA develops. This is only a summary of a complex regulatory system and is not legal advice. Specific questions regarding the CTA should be directed toward your V&E relationship attorney.