Developments concerning the enforceability and enforcement of the CTA came at a rapid clip this week. As things stand, the government may enforce the CTA pending a Texas court appeal in Smith v. U.S. Department of the Treasury. FinCEN indicated its intent to enforce the CTA but provided reporting companies with a revised deadline to submit the required reports. We have previously blogged about the litigation here and here.
Maine Court Upholds CTA
On February 14, 2025, the United States District Court for the District of Maine ruled that the Corporate Transparency Act (“CTA”) is constitutional under the Commerce Clause of the U.S. Constitution. In Boyle v. Bessent, the plaintiff challenged Congress’s authority to enact the CTA and sought injunctive relief preventing its enforcement. No. 2:24-cv-00081-SDN (D. Me. Feb. 14, 2025). Plaintiff is a resident of Maine with ownership interests in multiple LLCs that own real estate. The government argued that it had authority for the CTA under separate clauses of the Constitution, including the Commerce Clause, the power to lay and collect taxes, and under the Necessary and Proper Clause. Lastly, the government argued that authority comes from both Congressional and Presidential authority to regulate foreign affairs and address national security. The Court held that the CTA is constitutional under the Commerce Clause, stating that the:
CTA regulates economic or commercial activity-the prerequisite to considering whether or not such activity substantially affects interstate commerce in the aggregate. The existence of a corporate entity is “in any sense of the phrase, economic activity.”
This holding is in stark contrast to other cases, in which courts found the CTA does not regulate activities that affect interstate commerce, or channels or instrumentalities of interstate commerce.
A Brief Recap of CTA Litigation
Decisions on the Constitutionality and enforceability of the CTA have varied widely across the country. For instance, the Northern District of Alabama found the CTA to be unconstitutional under Congress’ foreign affairs and national security powers, the Commerce Clause, and Congress’ taxing powers and enjoined the government from enforcing the CTA. See Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024). This decision is on appeal. Meanwhile, several district courts have refrained from preliminarily enjoining the CTA, reasoning that plaintiffs were not likely to succeed, in part, on the merits of a Commerce Clause violation. See Cmty. Ass’ns Inst. v. Yellen, No. 24-cv-1597, 2024 WL 4571412 (E.D. Va. Oct. 24, 2024); Firestone v. Yellen, No. 24-cv-1034, 2024 WL 4250192 (D. Or. Sept. 20, 2024).
In two separate cases in the Eastern District of Texas, the Court preliminarily enjoined the government from enforcing the CTA and stayed the compliance date. The first is Tex. Top Cop Shop, Inc. v. Garland, No. 24-cv-478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024), amended and superseded, 2024 WL 5049220 (Dec. 5, 2024). Subsequently, the government appealed and a Fifth Circuit motions panel stayed the nationwide injunction. Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5203138 (5th Cir., Dec. 23, 2024). On January 23, 2025, the U.S. Supreme Court stayed the Eastern District of Texas’ order pending appeal in the Fifth Circuit. McHenry v. Tex. Top Cop Shop, Inc., No. 24A653, 2025 WL 272062 (U.S. Jan. 23, 2025).
The second case filed in the Eastern District of Texas preliminarily enjoined the CTA is Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). The government appealed the district court’s order and filed a motion to stay pending appeal. The government’s motion indicated that if the district court order is stayed, FinCEN intends to extend the reporting deadline for all reporting companies for 30 days from the date the stay is granted. In addition, FinCEN would assess during a 30-day period whether further modifications should be made to the beneficial ownership information (“BOI”) regulations for “lower-risk” entities and prioritize reporting for entities that pose the most risk to national security.
Texas Judge Allows CTA Enforcement Pending Treasury’s Appeal
On February 18th, the Texas Judge in Smith granted the government’s motion to stay the order pending appeal. This lifts the preliminary injunction that temporarily halted enforcement of the CTA.
As a reminder, FinCEN has posted several alerts in light of the various orders. FinCEN updated the alert regarding the ongoing litigation in Smith to provide that the updated deadline for most, but not all, reporting companies will be March 21, 2025. For reporting companies that were provided a deadline later than March 2025, for example reporting companies that qualify for disaster relief, they may file by the April 2025 deadline. Furthermore, the updated alert currently states that “during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.
President Trump signed an Executive Order in January ordering all departments and agencies to halt the proposal or issuance of any rule to the Office of the Federal Register until an administration-appointed agency head reviews the proposal. It is unclear whether this Executive Order affects FinCEN’s review of the BOI regulations carrying out the CTA. The U.S. Department of Treasury is under the leadership of an administration-appointed agency head; however, the previous Secretary of the Treasury appointed FinCEN Director Gacki.
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