Preliminary Injunction: Corporate Transparency Act

PRELIMINARY INJUNCTION

Judge Prevents the Enforcement of the Corporate Transparency Act and Beneficial Ownership Information Reporting

What is Texas known for? Cowboys…. good food… the Alamo… judicial rulings???

In what is becoming a seemingly familiar occurrence, on December 3, 2024, in Texas Top Cop Shop v Garland et al., a judge in the Eastern District of Texas issued a preliminary injunction on the enforcement of the Corporate Transparency Act (CTA), which includes the requirement for most businesses to report its Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). One of the stated goals of the reporting requirement was to fight financial crime. The deadline for businesses in existence prior to January 1, 2024 was fast approaching at the end of this month, with businesses created during 2024 having a 90-day window to file. As a result, millions of businesses have already filed their BOI report with FinCEN, but millions more have not.

So what does this ruling mean? Well, the ruling does not roll back the law itself, only acts to prevent current enforcement. The ruling is for a preliminary injunction, so the case will move forward to a final decision by the judge. Judge Mazzant was pretty direct in the ruling, indicating that the CTA was likely unconstitutional and unduly burdensome on small businesses. When considering the fact that the judge granted a country-wide preliminary injunction, a form of extraordinary relief, together with the reasoning provided in the ruling, the direction of the ultimate decision in the case seems pretty clear.

President Elect Trump has already indicated a desire to streamline and limit regulation. It may well be that with the new administration, the CTA is on the chopping block to limit administratively, or there may be an effort to repeal or modify the law legislatively. Only time will tell.