On December 3, 2024, in Texas Top Cop Shop, Inc., et al. v. Garland, et al., the United States District Court for the Eastern District of Texas granted a nationwide preliminary injunction that stayed the enforcement of the Corporate Transparency Act (CTA) and the CTA’s reporting rules. While the District Court did not go as far as to declare the CTA unconstitutional, it stated that the CTA is likely unconstitutional as outside of Congress’s power. Specifically, the opinion stated that the plaintiffs would likely be able to prove that the CTA is not proper under the Commerce Clause or the Necessary and Proper Clause of the Constitution. The preliminary injunction issued by the District Court applied nationwide and provided that reporting companies did not need to comply with the CTA’s Beneficial Ownership Interest (BOI) reporting deadlines pending further order of the District Court. Following the District Court’s ruling, the Government made a Motion to Stay the Preliminary Injunction Pending Appeal, which the District Court denied on December 17, 2024.
Fifth Circuit Appeal
On December 13, 2024, the Department of Justice filed an emergency motion with the U.S. Court of Appeals for the Fifth Circuit to stay the District Court’s nationwide preliminary injunction. On December 23, 2024, the Fifth Circuit granted the government’s motion for a temporary stay of the District Court’s order and injunction pending appeal. The effect of this order was to cause the filing deadlines under the CTA to revert to the deadlines that were in effect before the District Court’s ruling in the Texas Top Cop Shop case. Shortly after the Fifth Circuit overturned the District Court’s injunction, the U.S. Financial Crimes Enforcement Network (FinCEN), which is the bureau of the United States Treasury that is responsible for administration of the CTA, posted a notice on its website allowing a brief extension of the filing deadlines (as described below). On December 24, 2024, the plaintiffs filed an Emergency Petition for Rehearing En Banc with the Fifth Circuit requesting that the Fifth Circuit reverse its decision staying the District Court’s injunction and requesting a decision by January 6, 2025. The Fifth Circuit has requested that the government file its response to the plaintiffs’ petition for rehearing by noon on December 31, 2024.
FinCEN Guidance
In response to the initial District Court ruling imposing a temporary injunction, FinCEN posted a statement on its website stating that “[i]n light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.” After the Fifth Circuit order lifting the stay on December 23, 2024, FinCEN posted a further notice on its website stating that the CTA reporting obligations are again in effect, but also provided a short extension of the filing deadlines. The filing deadline for reporting companies that were created or registered before January 1, 2024, was extended to January 13, 2025. FinCEN also allowed a short extension of the filing deadline for certain other reporting companies that were created or registered during 2024. In its latest notice FinCEN also stated that the plaintiffs in the National Small Business v. Yellen (No. 5:22-cv-01448 (N.D. Ala.) case are not currently required to report their BOI.
What To Do Next:
Reporting companies that have yet to file a BOI Report, and are not exempt from the CTA’s reporting requirements, should closely follow developments in the case as the appeals process continues. Following the District Court’s ruling, FinCEN continued accepting new BOI Reports and updates to previously filed BOI Reports on its website but indicated that the filings were voluntary in light of the preliminary injunction issued by the District Court. Following the Fifth Circuit’s order that stayed the District Court’s injunction, FinCEN stated that reporting companies are again required to file BOI reports.
We recommend that reporting companies file their BOI Reports by the extended deadlines. Reporting companies that were created or registered prior to January 1, 2024, now have a filing deadline of January 13, 2025. FinCEN also granted short extensions for reporting companies that were created or registered after September 4, 2024, but before January 1, 2025.
We are following developments relating to the Texas Top Cop Shop case and plan to provide further updates. If you have any questions related to the CTA or the recent rulings, please reach out to your SGR attorney or any of the individuals listed below.
Tom Hong (Atlanta/Austin/Charlotte)
Brett Lockwood (Atlanta/Austin/Charlotte)
Eric Breitman (New York/Washington D.C.)
Adam Buss (Jacksonville/Miami/Tampa)
Peter Rho (Los Angeles)
Ben Graham-Evans (London)
Michael Kraus (Atlanta – German Practice)
Stefan Buske (Munich)
For more information about the CTA, CLICK HERE.
***Updated as of December 26, 2024