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Corporate Transparency Act Faces Legal Challenges Amid Constitutional Debate

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Corporate Transparency Act Legal Challenges 2025

WASHINGTON, D.C. — The Corporate Transparency Act (CTA), a landmark 2021 law aimed at combating illicit financial activities, is embroiled in a legal battle over its constitutionality, leaving businesses and legal experts in limbo. The law, enforced by the Treasury Department‘s Financial Crimes Enforcement Network (FinCEN), requires businesses to report beneficial ownership information to prevent money laundering, tax evasion, and other crimes.

The CTA mandates that reporting companies, including limited liability companies, corporations, and partnerships, disclose detailed information about their beneficial owners. Non-compliance carries severe penalties, including fines of up to $590 per day, criminal charges, and imprisonment. FinCEN estimates that compliance costs could exceed $22.8 billion in 2024 alone, with millions of hours of work required.

However, the law’s enforcement has been halted by multiple court injunctions. In March 2024, an Alabama district court ruled the CTA likely unconstitutional under the Commerce Clause, issuing a preliminary injunction. Similar cases in Michigan, Oregon, and Virginia have added to the uncertainty. The most significant challenge, Texas Top Cop Shop v. Yellen, has seen a rollercoaster of rulings, with courts alternately halting and reinstating the CTA’s enforcement.

Lili Martin-Mashburn, a partner at Morris, Manning & Martin, explained the legal complexities: “The primary argument is whether Congress has the authority under the Commerce Clause to regulate the formation of domestic entities. Critics argue that forming a company is not inherently economic activity, while the government contends it impacts interstate commerce.”

The Supreme Court is now weighing whether to uphold or narrow the injunction. Meanwhile, businesses face confusion over compliance. “It’s been chaos,” Martin-Mashburn said. “Clients are preparing to file reports but are hesitant given the legal uncertainty.”

As the legal battles continue, the future of the CTA remains uncertain, with implications for millions of businesses and the fight against financial crime.