On Tuesday, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, blocking enforcement of the Corporate Transparency Act (CTA), questioning its constitutionality and its impact on small businesses. The ruling prevents the federal government from enforcing CTA requirements until further notice. (Forbes, Dec. 4)

Impact of Ruling

• The CTA, effective January 1, 2024, mandates that over 32 million "reporting companies" disclose beneficial ownership information to the Treasury Department's Financial Crimes Enforcement Network (FinCEN).

• Due to the far-reaching scope of the CTA, The Roundtable has long raised concerns about the regulatory burden and cost the CTA would impose on many commercial and residential real estate investment businesses.

• The preliminary injunction halts enforcement of the upcoming January 1, 2025, deadline for filing ownership reports.

• The decision marked the second time a judge has deemed the law unconstitutional. An Alabama federal judge reached a similar conclusion in March (Reuters, Dec. 4 | Roundtable Weekly, March 8)

• The injunction is temporary; not a final decision. The pause on enforcement could be overturned if the ruling is challenged successfully on appeal.

Court's Decision

• In Texas Top Cop Shop v Garland et al., Judge Amos L. Mazzant III found the CTA's federal oversight of corporate ownership to be overreaching, infringing on constitutional rights typically overseen by states. (Bloomberg, Dec. 3)

• Judge Mazzant also highlighted the heavy compliance costs — projected at $22 billion in the first year alone — without adequate privacy safeguards.

• The plaintiffs, including small business owners and a trade association, argued that the CTA compels speech and association, infringing on First Amendment protections. They also raised concerns about privacy violations under the Fourth Amendment, given the extensive personal information required.

• The Court agreed that a nationwide injunction was necessary due to the sweeping impact of the CTA.

Roundtable Opposition

• The Roundtable has consistently opposed beneficial ownership rules under the CTA, the burdensome reporting requirements, and the negative impact on real estate partnerships and capital formation.

• In May, The Roundtable and more than 100 business organizations expressed strong support for bicameral legislation that would repeal the Corporate Transparency Act (CTA) and its onerous beneficial ownership burdens. (Roundtable Weekly, May 10)

• RER continues to work with policymakers to identify a balanced position that would inhibit illicit money laundering activity but would not place unnecessary compliance costs and regulatory burdens on the real estate industry. (Roundtable Weekly, June 7 )

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to closely monitor developments related to the enforcement of the CTA and challenges to the law.