As the calendar turns to 2025, there is a new development in the off-again, on-again Corporate Transparency Act (“CTA”). This time, the highest court has weighed in.
On Thursday, Jan. 23, the U.S. Supreme Court (“SCOTUS”) lifted the nationwide injunction against enforcement of the CTA that was issued by the U.S. District Court of the Eastern District of Texas in Texas Top Cop Shop v. McHenry (formerly Texas Top Cop Shop v. Garland). By granting the U.S. Department of Justice’s motion for stay in the nationwide CTA injunction, the justices have sided with the federal government to lift the nationwide injunction pertaining to the CTA. The CTA requires millions of businesses to file and disclose the information of their beneficial owners.
FinCEN responded to the federal court order on Friday morning by issuing guidance on its website, saying that reporting is voluntary, for now.
“As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
As FinCEN has said, Beneficial Ownership Information (BOI) reporting remains voluntary as separate cases pending in the federal courts challenge the merits of the CTA.
On Thursday, in a brief unsigned order, SCOTUS had one dissenting opinion, made by Justice Ketanji Brown Jackson:
“I see no need for this Court to step in now for at least two reasons. First, the Fifth Circuit has expedited its consideration of the Government’s appeal. Second, the Government deferred implementation on its own accord — setting an enforcement date of nearly four years after Congress enacted the law — despite the fact that the harms it now says warrant our involvement were likely to occur during that period. The Government has provided no indication that injury of a more serious or significant nature would result if the Act’s implementation is further delayed while the litigation proceeds in the lower courts. I would therefore deny the application and permit the appellate process to run its course.”
In December 2024, the status of the CTA flip-flopped three times:
- On Dec. 3, 2024, Judge Amos L. Mazzant III, of the U.S. District Court for the Eastern District of Texas, granted a nationwide preliminary injunction to temporarily block the enforcement of the CTA, ruling the act unconstitutional. The opinion was published in Texas Top Cop Shop, Inc. v. Garland(E.D. Tex., No. 4:24-cv-00478).
- On December 23, 2024, the Fifth Circuit overturned the Texas District Court’s nationwide injunction regarding the Corporate Transparency Act (“CTA”), requiring companies to report.
- On Dec. 26, 2024, a United States Court of Appeals for the Fifth Circuit panel issued an order to vacate the order on Dec. 23 made by a different panel in the same court.
On March 1, 2024, the Northern District of Alabama Northeastern Division, in National Small Business United v. Yellen, No. 5:22-cv-1448 (N.D. Ala.), ruled the CTA unconstitutional. However, the holding only applied to the plaintiffs in the Alabama federal case.
CTA Background
The CTA is a federal law that requires businesses to disclose and report information about their owners and controllers to FinCEN. It was enacted by Congress in 2021 as an expansion of the anti-money laundering laws, intended to prevent terrorist financing, corruption, tax fraud, and other illicit activity. It went into effect on Jan. 1, 2024, but courts have gone back and forth on the constitutionality of the act.
Adams and Reese will continue to monitor further court decisions and also any response and guidance published by FinCEN in response to the latest decision.
