On December 3, 2024, a Texas-based federal court issued a preliminary injunction prohibiting the federal government from enforcing the Corporate Transparency Act (CTA) on a nationwide basis.
The case, Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.), was brought by six plaintiffs – one individual, three privately owned small businesses, a political organization and an association representing approximately 300,000 members comprising small businesses. The court preliminarily enjoined enforcement of the CTA and its reporting requirements on a nationwide basis. The court found that the plaintiffs successfully demonstrated that the CTA is likely unconstitutional as outside of Congress’s power and that its implementation would irreparably harm reporting companies if they were forced to comply. It is important to note that this decision is not a full and final ruling on the merits of the case, but temporarily halts enforcement of the CTA while the case proceeds.
The nationwide application of the injunction without a decision on the merits presents a conundrum for companies who have not yet made CTA filings that would otherwise be required by January 1, 2025. The government may move quickly to ask a federal appellate court to stay, vacate, or limit the trial court’s preliminary injunction. As a result, the appellate court could potentially issue a stay, vacatur, or limitation of the injunction later this month, leaving a very short window for meeting any compliance deadline occurring on or before January 1, 2025. However, as long as the Texas trial court’s preliminary injunction remains in effect and unchanged, there is no requirement to make any CTA filings.
Given these uncertainties, companies should consider proceeding with any analysis necessary to determine whether they are required to make any CTA filings and gather the necessary information to file promptly if the preliminary injunction does not remain in effect through the end of the year.
It is critical that affected companies continue to monitor developments with respect to this court decision.