The Corporate Transparency Act Whipsaw ContinuesThe Corporate Transparency Act Whipsaw Continues
U.S. Supreme Court stays one lower court’s injunction of the CTA, but another lower court’s order still keeps the Act in suspended animation.
Under the Corporate Transparency Act (CTA), many companies must submit information about themselves and their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Pursuant to regulations issued to implement the CTA, reporting companies formed before Jan. 1, 2024, had until the end of 2024 to file their initial beneficial ownership information reports with FinCEN.
On Dec. 3, mere weeks before this significant filing deadline for millions of companies, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland issued a nationwide preliminary injunction barring the enforcement by the U.S. government of the CTA. The government promptly appealed to the U.S. Court of Appeals for the Fifth Circuit, and on Dec. 23, a motions panel of the appellate court granted the government’s emergency motion for a stay pending appeal. The CTA’s resuscitation didn’t last long; however, on Dec. 26, the U.S. Court of Appeals for the Fifth Circuit vacated the stay, causing the nationwide injunction to remain in effect. On Dec. 31, the government took the matter to the U.S. Supreme Court, applying for a stay of the injunction.
While the Supreme Court was considering whether to stay the district court’s injunction, on Jan. 7, another judge on the U.S. District Court for the Eastern District of Texas, in Smith v. United States Department of the Treasury, stayed the effective date of the final rule issued by FinCEN establishing the CTA’s compliance requirements and deadlines. This stay effectively enjoined the CTA’s nationwide enforcement but was largely overshadowed by the earlier nationwide preliminary injunction that had been issued in Texas Top Cop Shop.
Supreme Court Stays Texas Top Cop Shop Injunction
It took barely more than two weeks, however, for the stay in Smith to become very much salient. On Jan. 23, the Supreme Court granted the government’s application for a stay of the Texas Top Cop Shop injunction, pending the disposition of the appeal in the Fifth Circuit and the subsequent disposition of a petition for a writ of certiorari to the Supreme Court. But the stay of the Texas Top Cop Shop injunction didn’t automatically overturn the district court’s stay of the CTA regulations in Smith.
A day after the Supreme Court’s grant of the stay in Texas Top Cop Shop, FinCEN acknowledged that the Smith nationwide order remains in effect and that companies aren’t required to file beneficial ownership information reports with FinCEN and aren’t subject to liability for failing to do so while the Smith order is in force. Companies may still file reports with FinCEN voluntarily. As of press time, the Smith stay remains in effect, and the government hasn’t requested reconsideration of the stay, nor has it appealed it.
CTA Status Still in Flux
While the district court’s stay in Smith may give some breathing room to reporting companies, the CTA’s status remains very much in flux. The government may appeal the Smith stay, while other courts could weigh in on the subject. There’s also the possibility of congressional action to modify or repeal the CTA. Finally, in the background, there’s uncertainty about the extent to which President Trump’s administration will wish to enforce the CTA and defend it in the myriad cases that have been filed to challenge the law. With so many moving parts, the situation can change quickly, underscoring the importance of monitoring developments in this area.
