
Federal judges in Texas have suspended the Corporate Transparency Act (CTA), igniting a constitutional debate over federal power versus state rights.
At a Glance
- Two federal judges in Texas issued a nationwide injunction against the Corporate Transparency Act
- The CTA requires businesses to disclose ownership information to the Department of Treasury
- Judges argue the act likely breaches constitutional limits and infringes on state jurisdiction
- Critics claim the CTA disproportionately burdens small businesses and raises privacy concerns
- The Treasury Department has made compliance voluntary pending ongoing litigation
Judges Halt Controversial Corporate Transparency Act
In a significant blow to federal oversight efforts, two federal judges in Texas have ruled that the Corporate Transparency Act (CTA) is “likely unconstitutional” and 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 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 goes beyond a previous ruling in Alabama that only applied to specific plaintiffs, potentially setting a precedent for challenging federal regulatory overreach.
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
Constitutional Concerns and Small Business Impact
The case, Texas Top Cop Shop, Inc. v. Garland et al., raises serious constitutional questions about federal overreach and the burdens placed on small businesses. Critics argue that the CTA disproportionately affects small enterprises, with compliance costs estimated to exceed $22 billion in the first year alone.
“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 said.
Judge Mazzant, in granting the injunction, cited potential violations of federalism principles, First Amendment protections, and Fourth Amendment privacy rights. He described the CTA’s reporting requirements as “unprecedented” and “a drastic two-fold departure from history.”
Federal Overreach and State Jurisdiction
The ruling underscores the ongoing tension between federal mandates and state rights, particularly in the realm of corporate affairs. Judge Kernodle noted 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.”
This decision aligns with conservative values that prioritize limited government intervention and protection of state sovereignty. The Office of the Attorney General, while not a party to the lawsuits, filed an amicus brief supporting the challenge, arguing that the CTA represents an unconstitutional federal overreach.
Who wins in this situation?