Businesses watch fight over CTA

Businesses are following a seesaw battle over the federal Corporate Transparency Act after the 5th Circuit Court of Appeals lifted a federal district judge’s injunction against enforcement of the law’s registration deadline.

U.S. District Court Judge Amos L. Mazzant III of the Eastern District of Texas issued a preliminary injunction Dec. 3 in Texas Top Cop Shop, Inc. v. Garland, ruling that the five plaintiffs in the case were likely to prevail on their claim that the CTA violated the Commerce Clause and their constitutional right to privacy.

“At its most rudimentary level, the CTA regulates companies that are registered to do business under a State’s laws and requires those companies to report their ownership, including detailed, personal information about their owners, to the Federal Government on pain of severe penalties,” wrote Mazzant.

“Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States — anonymity. For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government.”

The federal government immediately appealed the ruling and asked Mazzant to stay his order during the appeal. However, he declined to do so in a Dec. 17 order.

Just six days later, the federal government won at least a temporary reversal.

“[T]he government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality,” a three-judge panel wrote in a per curiam decision on the appeal. “When Congress passed the bipartisan statute in 2021, it used its ‘broad authority under the Commerce Clause’ to regulate economic activity. … [T]he CTA requires certain corporate entities to report their beneficial ownership interest in order to target illicit financial activity. In doing so, it regulates anonymous ownership and operation of businesses. Those ‘are part of an economic class of activities that have a substantial effect on interstate commerce.’ Thus, a reporting requirement for entities engaged in these economic activities falls within ‘more than a century of [the Supreme] Court’s Commerce Clause jurisprudence.”

After the 5th Circuit ruling, companies covered by the CTA were reminded in an alert posted by the Financial Crimes Enforcement Network that they again face a deadline to register their “beneficial ownership information” under the law. Registration is with the network, which also is known as FinCEN and is a subagency of the U.S. Treasury Department.

The original registration deadline for many companies was Jan. 1, 2025. However, with the legal conflict between Mazzant’s ruling and the 5th Circuit’s reversal, FinCEN has extended the deadline as follows:

Reporting companies that were created or registered before Jan. 1, 2024, have until Jan. 13, 2025, to file their initial beneficial ownership information reports. (These companies would otherwise have been required to report by Jan. 1, 2025.)