Texas judge shoots down Corporate Transparency Act
The Corporate Transparency Act (CTA), which was crafted with an aim to enhance "disclosure of corporate ownership" -- but raised concerns from many small business owners due to concerns of government overreach -- has been blocked by a Texas federal court. The decision comes just weeks before the proposed year-end filing deadline.
The NLBMDA lauded the decision, with President Jonathan Paine sharing in a statement:
"This ruling by the court is a major victory for NLBMDA, our industry and for small businesses across America, who under the CTA would have been required to report unprecedented levels of company ownership and employee personnel information through the submission of beneficial ownership information reports (BOIs) to the Financial Crimes Enforcement Network."
The legislation, which would have required nearly 33 million U.S. business entities disclose its "beneficial owners" to the Treasury Department before 2025, was deemed "quasi-Orwellian" and outside Congress' purview by Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas.
As Bloomberg explains, Mazzant "issued the injunction at the request of a family-run firearms and tactical gear retailer, called Texas Top Cop Shop Inc., among other co-plaintiff businesses and the Libertarian Party of Mississippi. Their lawsuit alleged that the CTA falls outside of Congress’s powers to regulate interstate and foreign commerce because it regulates incorporated entities regardless of whether they engage in commercial activity."
The NLBMDA, meanwhile, says it has "vehemently supported litigation in opposition to the CTA" and has consistently thrown its weight behind previous challenges to the law. It writes: "NLBMDA strongly endorses the court’s decision that CTA is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers," adding that while the reporting requirements on small businesses are blocked for now, the U.S. Department of Justice could appeal the ruling all the way to the U.S. Supreme Court.
The National Law Review adds this additional context to the fallout from the ruling:
"The Court’s decision will likely not be the final word on the CTA’s enforceability. To begin, the Court entered only a preliminary injunction, which it could theoretically reconsider at some point in the future. The more likely next step, however, is that the government will immediately appeal this decision to the United States Court of Appeals for the Fifth Circuit. A further appeal could be taken to the United States Supreme Court. But unless a court specifically dissolves the Texas Top Cop Shop injunction, companies will not be required to comply with the CTA’s reporting requirements."
