Less than a month before the deadline for Corporate Transparency Act (“CTA”) reporting requirements, a Texas federal court has struck down the looming and much-challenged Act.
As we have mentioned in a series of previous client alerts, there have been a number of legal challenges to the constitutionality of the CTA and, in particular, the requirement that the “beneficial owners” of a wide variety of legal entities, including corporations and LLCs, provide their identity and copies of identifying documents to the federal government by filing and regularly updating beneficial ownership information reports (the “Reporting Rule”). What is the purpose of the CTA? Read our guide here.
While at least one of the previous legal challenges to the CTA was successful, these rulings only applied to the plaintiffs in those particular cases, and the cumbersome CTA reporting requirements were still enforceable for most entities. However, on December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an order imposing a nationwide injunction against enforcement of the CTA and the Reporting Rule. In issuing this most recent ruling, the Court found that the CTA was unconstitutional, as it falls outside of Congress’ authority to regulate commerce.
While this injunction will provide millions of business owners and operators with relief from the impending deadlines of the Reporting Rule, it should be noted that this injunction is not a final decision, and the enforceability of the CTA will continue to move through the courts. Accordingly, there is a possibility that a subsequent legal decision could lift this injunction and reinstate the Reporting Rule.
We will continue to monitor developments regarding the CTA and provide additional information as necessary. Please direct any questions to cta@darslaw.com.
