Texas District Court places nationwide block on Corporate Transparency Act

On Dec. 3, 2024, the U.S. District Court for the Eastern District of Texas ruled that the Corporate Transparency Act (CTA or Act) is likely unconstitutional and issued a preliminary nation-wide injunction, prohibiting enforcement of its Jan. 1, 2025, compliance deadline. We are awaiting the Justice Department’s response and likely eventual challenge to the ruling.

The case

The CTA broadly requires certain U.S. entities to report identifying information about the individuals owning or controlling the entity, in what the government contends is an effort to combat the use of shell companies “as a tool to disguise and move illicit funds.” For additional details regarding the Act and its reporting requirements, please see The Corporate Transparency Act: What you need to know now.

In Texas Top Cop Shop Inc. v. Garland, the court determined the CTA’s imposition of disclosure requirements on entities created under state laws, which allow for anonymity, exceeds Congress’ authority. Notably, this marks the second time this year a U.S. district court has ruled against the government in a suit filed against the Act, with the Court for the Northern District of Alabama having done so in March. Conversely, district courts in Oregon and Virginia struck down challenges to the CTA in September and October, respectively.

What’s next

The business and legal communities are highly anticipating the government’s response, which will likely announce their intent to appeal, as it did in March in response to the Alabama District Court’s ruling. It is entirely possible a Federal Appeals Court could reverse the injunction and require compliance as the various cases proceed through the appeals process, possibly to the Supreme Court.

As previously noted, Baker Tilly, in addition to other accounting firms, has determined assisting with the reporting required by the CTA constitutes the practice of law. As such, we strongly advise you to reach out to your legal counsel as soon as possible given the potentially arduous cost of compliance to discuss the possible impact of this latest ruling on your filing requirements and for any assistance needed.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.