This afternoon, on December 23, the U.S. Court of Appeals for the Fifth Circuit issued a per curiam opinion (signed by Judges Stewart, Hayes and Higginson) staying the preliminary injunction previously entered in the Eastern District of Texas prohibiting enforcement of the federal Corporate Transparency Act (CTA) (31 U.S.C. § 5336) and the Beneficial Ownership Information Reporting Requirements Final Rule promulgated thereunder (Final Rule) (31 C.F.R. 1010.380). The effect of the Fifth Circuit’s order is to reinstate the requirements of the CTA and the Final Rule, including the upcoming January 1, 2025, deadline for all non-exempt reporting companies in existence prior to January 1, 2024. The case citation is Texas Top Cop Shop, Inc. v. Garland, No. 24-40792 (5th Cir.). The court’s opinion and order are available here.
In its opinion, the Fifth Circuit held that the Financial Crimes Enforcement Network (FinCEN) and the federal government “made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality,” finding that “the CTA at least operates constitutionally when it requires that corporations engaged in business operations affecting interstate commerce disclose their beneficial owner and applicant information to the Department of the Treasury’s Financial Crimes Enforcement Network.” The Fifth Circuit further justified its order in holding that staying the preliminary injunction would only impose “minimal” harm on regulated businesses. In support of that conclusion, the Fifth Circuit relied on FinCEN’s estimate that a “typical, simple company would spend about ninety minutes (or about $85 worth of time) to complete and file CTA’s required report.” The Fifth Circuit further suggested that the plaintiffs’ pursuit of broad injunctive relief was undermined by not having filed its lawsuit sooner after the enactment of the CTA and promulgation of the Final Rule.
While the plaintiffs may seek Supreme Court review of the Fifth Circuit’s order, the timing and outcome of any such review is far from certain. Coupled with the rapidly approaching deadline and intervening holidays, that uncertainty means that reporting companies should compile all of the necessary materials to complete and file any required Beneficial Ownership Information Reports and establish a plan to make any such filings in the event the compliance deadlines remain in place. Reporting companies that determine to wait and see if the Supreme Court will reinstate the trial court’s injunction should continue to monitor this case very closely for updates as the situation could change very quickly.
Developments in other pending federal litigation challenging the constitutionality of the CTA (including National Small Business United v. Yellen, No. 24-10736 (11th Cir.)) may also impact the applicability of the court’s order. As of late afternoon on December 23, FinCEN had not published any statement or guidance regarding any relief or extensions it might extend to reporting companies who relied on its prior guidance that reporting companies would not be subject to liability if they failed to file any BOI Reports while the preliminary injunction remained in effect.
Our CTA Task Force will continue to monitor for relevant developments, with periodic updates accessible at our CTA resource page. If you have any questions or need advice about CTA or its application to your business, please contact one of the members of the CTA Task Force or your primary Bass, Berry & Sims attorney.
This alert is not intended to, and does not, provide legal, compliance or other advice to any person, and receipt of this document does not constitute the establishment of an attorney-client relationship. The information and analysis set forth in this document is subject to change based on new regulations and regulatory guidance, and other circumstances. Applicability of the CTA can be subject to a detailed factual analysis. Entities and individuals should consult with their attorney for specific CTA advice.