Federal judges halt enforcement of the Corporate Transparency Act, citing constitutional concerns and potential overreach by Congress.
At a Glance
- Two federal judges rule the Corporate Transparency Act (CTA) is “likely unconstitutional”
- Nationwide injunction issued, pausing the January 1, 2025 compliance deadline
- CTA requires businesses to disclose ownership information to the Department of Treasury
- Critics argue the law burdens small businesses and raises privacy concerns
- Treasury Department makes information submission voluntary due to ongoing litigation
Federal Judges Challenge Corporate Transparency Act
In a significant blow to federal efforts to increase corporate oversight, two federal judges have ruled that the Corporate Transparency Act (CTA) is “likely unconstitutional” and have halted its enforcement. The CTA, passed by Congress in 2021 after overriding a veto by then-President Donald Trump, requires entities incorporated under state law to disclose personal information of stakeholders to the Department of the Treasury’s Financial Crimes Enforcement Network.
Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the CTA, effectively pausing its January 1, 2025 compliance deadline. This decision came in response to a lawsuit filed by small businesses in Texas against U.S. Attorney General Merrick Garland, challenging the constitutionality of the law.
A Texas federal judge’s order to temporarily block the government from enforcing the Corporate Transparency Act has prompted businesses across the US to pause disclosure preparations just weeks before the law’s original 2025 deadline.https://t.co/iJ8VAu7cXi
— Bloomberg Tax (@tax) December 9, 2024
Constitutional Concerns and Federal Overreach
Judge Mazzant’s ruling highlighted serious concerns about the CTA’s scope and implications. He described the law’s reporting requirements as “unprecedented” and a “drastic two-fold departure from history,” Judge Amos Mazzant said.
“The Corporate Transparency Act mandates that millions of private entities formed under state law disclose sensitive personal information to federal law enforcement. The Act applies even to entities that are not alleged to be involved in a crime and to entities that are not engaged in interstate or foreign commerce. Failure to comply may result in fines, penalties, and imprisonment,” Judge Jeremy Kernodle stated.
Judge Kernodle further emphasized that the CTA “is unprecedented in its breadth and expands federal power beyond constitutional limits. It mandates the disclosure of personal information from millions of private entities while intruding on an area of traditional state concern.”
Impact on Small Businesses and Privacy Concerns
Critics of the CTA argue that it disproportionately burdens small businesses with compliance costs exceeding $22 billion in the first year alone. The law’s requirements affect over 32 million U.S. businesses, raising significant privacy and constitutional concerns. The Office of the Attorney General, though not a party to the lawsuits, has warned of severe penalties for noncompliance, including fines up to $500,000 and 10 years in jail.
A federal judge has put a hold on enforcement of the Corporate Transparency Act — and BOI reporting with it: https://t.co/X1dHwoJUCP
— Accounting Today (@AccountingToday) December 9, 2024
In light of the ongoing litigation, the Treasury Department has made information submission under the CTA voluntary. However, this has led to new challenges, including fraudulent attempts to solicit information under the guise of CTA compliance. Businesses are advised to remain vigilant and stay informed about the evolving legal situation.
