The U.S. District Court for the Eastern District of Texas issued a preliminary injunction that stops enforcement of the Corporate Transparency Act (CTA) nationwide. 

The injunction comes at the final hour, as under the act, businesses were required to file a corporate transparency report by Jan. 1. Businesses who missed the deadline faced up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $591 per day. 

Businesses that have not yet filed their report should stay vigilant on up-to-date information regarding the Texas case as an appeal from the Financial Crimes Enforcement Network (FinCEN) could alter the injunction in future months. 

The case, Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., questions the constitutionality of the CTA, which is meant to expose criminal activity by removing corporate anonymity. 

“At its most rudimentary level, the CTA regulates companies that are registered to do business under a state’s laws and require those companies to report their ownership, including detailed, personal information about their owners, to the federal government on pain of severe penalties,” wrote United States District Judge Amos L. Mazzant in the injunction order. “Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several states. Second, the CTA ends a feature of corporate formation as designed by various states — anonymity. For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government.” 

The National Federation of Independent Business (NFIB), which filed the lawsuit, applauded the court’s decision in a Tuesday press release. 

“This ruling is a huge victory for small businesses nationwide, and just in time,” said Beth Milito, executive director of NFIB’s Small Business Legal Center, in the release. “For many Main Street small businesses, they were a mere four weeks away from the deadline to file their information in accordance with the CTA. The BOI reporting requirements are a harmful invasion of small business owners’ privacy and a misuse of their valuable time. Thankfully, the Court agreed and granted a preliminary injunction, giving small business owners a reprieve from this burdensome rule.”

There have been multiple attempts to stall the CTA by different groups since it was enacted in 2021. 

In March, the Alabama U.S. District Court ruled that the CTA is unconstitutional. The decision protects members of the National Small Business Association (NSBA) who brought the suit. However, 32 million other small businesses in the nation are still required to meet the filing requirements. 

Hundreds of small businesses, including the Society of Collision Repair Specialists (SCRS), National Small Business Association, and S Corporation Association, asked for the passage of different bills, such as S3625 and its companion HR5119, that would have stalled legislation; however, none of the bills have made it through Congress.

One letter sent to Congress in March says the CTA specifically burdens the smallest of businesses with reporting requirements by applying only to entities with 20 or fewer employees, or less than $5 million in revenue. 

Most recently, more than 40 members of Congress sent a letter to FinCEN requesting a one-year delay on the CTA. 

An email from the S Corporation Association said organizations need to continue to work together with Congress and the new administration on a permanent fix.

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