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Federal Court Blocks Burdensome Reporting Rule for Small Businesses
Dec 4, 2024
In a significant victory for small businesses, a federal court has issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA). This reporting mandate, requiring businesses with less than $5 million in revenue and fewer than 20 employees to disclose detailed ownership information, has been blocked for potentially overstepping constitutional boundaries.
Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas ruled in Texas Top Cop Shop v. Garland that the CTA disrupts the balance of federalism by imposing federal oversight on matters traditionally managed by states. The court also highlighted the compliance burden, with costs projected to exceed $22 billion in the first year alone. Privacy concerns and First and Fourth Amendment violations were also cited in the ruling.
This injunction halts enforcement of the CTA, which had faced criticism for insufficient federal outreach and education, leading to a low compliance rate of just 10% as of October 2024. Businesses are advised to pause compliance efforts, monitor legal developments, and consult legal counsel as this case evolves.
With Vice President-elect J.D. Vance’s criticism of the CTA, future enforcement and policy direction remain uncertain. This ruling not only relieves millions of small businesses from imminent penalties but also reaffirms the importance of constitutional limitations on federal authority.