Texas District Court Strikes Down Beneficial Ownership Reporting Requirements

December 4, 2024

Texas District Court Strikes Down Beneficial Ownership Reporting Requirements

Small businesses received a resounding victory on the fight against the Corporate Transparency Act (CTA) and beneficial ownership information (BOI) reporting requirements. An early holiday gift to Main Street, a federal district court in Texas has issued a decision in NFIB’s lawsuit against the BOI requirements. The court blocked the Department of Treasury and Financial Crimes Enforcement Network (FinCen) from enforcing the BOI requirements.

Recall that NFIB filed its lawsuit back in May to overturn the BOI mandates. We argue that the Corporate Transparency Act (CTA), which established the BOI requirements, exceeds Congress’s authority and violates the First and Fourth Amendments of the Constitution. NFIB has long argued that the CTA illegally imposes burdensome requirements on small businesses, infringes on free speech by forcing disclosure of private information, and constitutes and unreasonable search.

The district court agreed. Known as the Commerce Clause, Article I, Section 8 of the United States Constitution states that “The Congress shall have power . . . To regulate commerce . . . among the several states[.]” The Government claimed that the BOI requirements were a valid exercise of Congress’s Commerce Clause power. Not so said the district court. It concluded that the “fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially through the CTA, which does not facially regulate commerce.”

The court also weighed how far to extend its holding. In our judicial system, judges have the option to narrow their decisions to the parties before them in a given case. In a previous case out of Alabama, a judge ruled that the CTA was unconstitutional but applied that decision to only the few parties that brought the case.

Because of the breadth and strength of NFIB’s membership, ALL small businesses across the country are relieved from the BOI requirements. Take it from the district court itself:

“At the Court’s hearing, Plaintiffs suggested that they sought an injunction on behalf of only the Plaintiffs before the Court, including the approximately 300,000 members of NFIB. The Government responded that if the Court were to enjoin the CTA and Reporting Rule, the scope of which included NFIB’s members, then the Court would, in practical effect, enter a nationwide injunction. The Court agrees with the Government’s point. A nationwide injunction is appropriate in this case. . . . NFIB’s membership extends across the country. And, as the Government states, the Court cannot provide Plaintiffs with meaningful relief without, in effect, enjoining the CTA and Reporting Rule nationwide. The extent of the constitutional violation Plaintiffs have shown is best served through a nationwide injunction.”

For now, the January 1, 2025, reporting deadline is delayed until a higher court holds otherwise.

NFIB expects the government to appeal this decision. We are prepared to defend the district court decision and fight against the burdensome and unconstitutional BOI requirements as long as the government seeks to saddle small business owners with this mandate.

For additional information on the court’s decision or the status of the BOI requirements, please reach out to the NFIB Small Business Legal Center at info@nfib.org.

Topics:

Legal

State:

Texas

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