Corporate Transparency Act: Emergency Fifth Circuit Appeal

PRESS RELEASE

For Immediate Release, December 24, 2024

Small Businesses File Emergency Appeal of Fifth Circuit Panel Decision That Restored a Sweeping and Invasive Federal Surveillance Law

The Corporate Transparency Act’s reporting mandate will threaten criminal penalties and steep fines on millions of small businesses unless injunction is restored

WASHINGTON, DC – On behalf of a coalition of small businesses and nonprofits, CIR is filing an emergency appeal to the full U.S. Fifth Circuit Court seeking to restore an injunction that had stopped an intrusive federal surveillance law from taking effect on January 1, 2025. The Corporate Transparency Act’s (CTA’s) sweeping reporting mandate compels more than 32 million small businesses nationwide to disclose confidential information to federal law enforcement on pain of criminal penalties. On December 3, 2024, a federal District Court in Texas enjoined the CTA, finding that the law likely exceeded Congress’ powers under the Constitution. Over the partial dissent of one judge, a panel of the Fifth Circuit stayed the injunction on December 23, which would have the effect of reimposing the regulatory burden on small businesses nationwide.

On December 3, 2024, a U.S. District Court issued a nationwide preliminary injunction banning the enforcement of the CTA in Texas Top Cop Shop v. Garland. In a thorough, 80-page opinion, District Judge Amos Mazzant determined that the CTA—which reaches almost every entity registered with a state or tribal authority—amounts to a regulation on their mere anonymous existence. Under Supreme Court precedent, Congress may regulate a corporate entity’s interstate commercial activity, but it may not regulate that entity’s mere existence.

After delaying for eight days, the federal government sought a stay of the injunction in the district court and Fifth Circuit. The Fifth Circuit panel ruling on December 23, which stayed the injunction, leaves businesses with only a very brief window during and shortly after the holiday season to comply with the CTA’s invasive and burdensome mandates. (After hearing that the plaintiffs would seek full Fifth Circuit review, the federal government extended the compliance deadline to January 13, 2025.)

The panel majority’s decision is dangerously flawed in its reasoning and its propensity to cause compliance nightmares—as well as cause irreparable harm to the constitutional rights of the plaintiffs, whose underlying lawsuit against the CTA is still pending. Although the government argues that any delay of the CTA’s implementation now would cause it irreparable harm in enforcing the law, that claim is belied by its years-long delays in issuing regulations and setting initial compliance dates.

The plaintiffs represented a true cross-section of the enterprises that would be affected by the law: Texas Top Cop Shop, a family business in Texas that sells equipment to first-responders, Data Comm for Business, a Texas-based IT firm, Mustardseed Livestock, a small dairy farm in Wyoming, and the Libertarian Party of Mississippi, were all brought together by the threat of the CTA. The suit is also joined by the National Federation of Independent Business, which advocates for nearly 300,000 small business members nationwide.

CIR is asking the full Fifth Circuit Court to vote to review the panel decision on the government’s request for a stay by Monday, January 6. An affirmative decision to review the panel ruling would reimpose the injunction until further judicial action is taken. The CTA should receive such scrutiny before it takes effect and irreparably violates the rights of tens of millions of Americans.

The petition for full court review can be found here.

About the Center for Individual Rights:
The Center for Individual Rights is a national public interest legal organization that provides free representation to clients whose rights have been violated or are seriously threatened. Celebrating its 35^th year, CIR has an impressive record of landmark victories in the Supreme Court of the United States and many other courts, setting legal precedents that restore and protect fundamental individual rights that are necessary for a flourishing and free society.

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