Posted in Triplett & Carothers on December 6, 2024
On December 3, 2024, a Texas Federal District Court ruled that the Corporate Transparency Act (CTA) and its associated regulations are unconstitutional.
The court’s decision was based on the argument that Congress exceeded its powers under the Commerce Clause by enacting the CTA, which requires certain business entities to report their beneficial owners. The court concluded that the existence of a company alone, without evidence of it engaging in commerce, does not justify federal regulation under the Commerce Clause.
This decision follows similar rulings in other cases, such as Firestone and Community Associations Institute, where courts upheld the CTA’s constitutionality. The Texas court issued a nationwide injunction against the enforcement of the CTA, meaning companies are temporarily exempt from filing beneficial ownership reports and the penalties associated with non-compliance.
While the ruling is significant, it is not final as the case is expected to be appealed to the 5th Circuit Court of Appeals. As of December 6th, the Financial Crimes Enforcement Network (FinCEN) has not yet clarified its next steps, leaving businesses uncertain about whether they should continue CTA compliance efforts.
Other ongoing cases challenging the CTA, including National Small Business United, are also being appealed, and decisions in those cases may further impact the future of the CTA.