Texas court strikes down Corporate Transparency Act

A U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction Dec. 3 that blocks enforcement of the Corporate Transparency Act. The move comes less than one month before the rule’s year-end filing deadline hits.

The Corporate Transparency Act was enacted in 2021 to crack down on money laundering operations posing as businesses, requiring qualifying businesses to disclose their beneficial ownership information to a database maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.  

But in Texas Top Cop Shop v. Garland, the plaintiffs alleged that the Corporate Transparency Act oversteps Congress’ jurisdiction to regulate interstate and foreign commerce and infringes on First Amendment protections. Judge Amos L. Mazzant III agreed that the act appears ‘likely unconstitutional.’ 

“For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government. As a result, plaintiffs contend that the [Corporate Transparency Act] violates the promises our Constitution makes to the people and the states,” the judge wrote. “Despite attempting to reconcile the [Corporate Transparency Act] with the Constitution at every turn, the government is unable to provide the court with any tenable theory that the [Corporate Transparency Act] falls within Congress’s power.” 

The decision follows a March case, National Small Business United v. Yellen, in which a federal judge in the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act is unconstitutional. FinCEN appealed the decision, which is currently pending in the 11th Circuit.  

It is unclear how FinCEN will respond to the nationwide injunction, but affected entities are currently no longer mandated to comply with the Corporate Transparency Act filing Jan. 1, 2025, filing deadline.  

The ADA said it will continue to work with Congress, its small businesses D.C. partners and the new administration to look for a permanent solution.  

“The ADA will continue to advocate to remove unnecessary and non-relevant regulatory burden, allowing them to prioritize their time for patient care,” said Shane Ricci, D.D.S., chair of the ADA Council on Dental Practice.

Visit fincen.gov/boi for more information on the Corporate Transparency Act and beneficial ownership.