In Texas Top Cop Shop Inc. et al. v. Garland et al., case number 4:24-cv-00478, a federal court sitting in the Eastern District of Texas, has enjoined the Corporate Transparency Act (“CTA”) beneficial ownership reporting requirements for now at least. The National Federation of Independent Business Inc., and several of its small-business members are behind the case, alleging that the CTA and its reporting requirements are an unconstitutional affront to individual rights.
In a 79-page decision, the court ruled Tuesday that the law “is likely unconstitutional as outside of Congress’s power,” describing it as an apparent contradiction that intrudes on states’ traditional authority over matters of corporate formation.
“For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” the court wrote. “Despite attempting to reconcile the CTA with the Constitution at every turn, the government is unable to provide the court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the court must give Congress, the CTA appears likely unconstitutional. Accordingly, the CTA and its implementing regulations must be enjoined.”
The Court’s injunction bars the Treasury Department from enforcing the reporting requirements and the CTA itself, staying its Jan. 1 deadline to begin submitting ownership filings to the Financial Crimes Enforcement Network while the litigation proceeds.
In summary, this ruling has significant implications for small businesses and their reporting obligations under the CTA. The outcome of this litigation will likely have a profound impact on the regulatory landscape affecting corporate transparency and individual rights. We anticipate that the government will appeal the order to the 5th Circuit Court immediately. We will continue to monitor this case closely and provide updates as they become available.
