The Corporate Transparency Act (CTA) continues to be a moving target, with recent court decisions reshaping compliance guidelines and keeping business owners on their toes and closely watching each development. On December 26, 2024, the U.S. Court of Appeals for the Fifth Circuit made a pivotal decision in Texas Top Cop Shop, Inc. v. Garland, vacating its own stay of a nationwide preliminary injunction that had previously halted enforcement of the CTA’s Beneficial Ownership Information (BOI) reporting requirements. Despite the Department of Justice seeking a stay of this injunction on December 31, 2024, the CTA is now once again unenforceable, at least for the time being as a family private office lawyer can share.
What does this mean for your business? For now, BOI reporting is voluntary — but the legal battle is far from over. In this post we will break down the latest updates, including insights from the landmark case Texas Top Cop Shop, Inc. v. Garland, and what steps your business should take next to prepare yourself for the future changes that are likely to come.
Timeline Of The CTA And Texas Top Cop Shop, Inc. V. Garland:
The Corporate Transparency Act (“CTA”) was enacted in 2021 and took effect on January 1, 2024 to combat illicit activities like tax fraud, money laundering, and terrorist financing, which exploit the anonymity of certain business entities. Pursuant to the CTA, those entities that operate in the United States and are designated as a Reporting Company in accordance with FinCEN’s guidelines must file a Beneficial Ownership Report in a timely manner to avoid civil and potential criminal charges.
In 2024, Texas Top Cop Shop, a small business owner, filed suit against U.S. Attorney General Merrick Garland in the US Eastern Texas District Court, challenging the CTA on the grounds that it was overly burdensome, vague, and infringed upon constitutional rights. At first glance, the CTA might appear to be a straightforward effort to increase transparency and prevent corporate misuse. However, the Plaintiffs argue that this federal mandate represents a significant departure from historical norms in two critical ways.
First, it establishes federal oversight of state-created entities. Traditionally, the regulation of companies formed under state law has been the exclusive domain of the states, in keeping with the principles of federalism upon which the United States was founded. The CTA disrupts this long-standing balance by imposing federal reporting requirements on these entities. Second, the CTA eliminates corporate anonymity. Many states have historically allowed corporate anonymity to protect the privacy of business owners. The CTA effectively ends this practice, requiring detailed personal disclosures.
The Plaintiffs view the CTA as a profound threat to the dual system of government established by the Constitution. They contend that this “quasi-Orwellian” law undermines both state sovereignty and individual privacy, raising serious constitutional concerns.
Despite the Government’s attempts to defend the CTA, it has been unable to present a convincing argument that the law falls within Congress’s constitutional authority. Even with the deference traditionally afforded to congressional action, the Court has indicated that the CTA appears likely to be unconstitutional.
On December 3, 2024, the US Eastern Texas District Court granted a preliminary injunction enjoining enforcement of the Corporate Transparency Act and its corresponding reporting rule pending the outcome of FinCEN’s ongoing appeal. This reinstated the January 1st reporting deadline for all companies that fall under the scope of the CTA.
The Government on behalf of FinCEN appealed and separately sought a stay of the injection pending that appeal. On December 23, 2024, the US Fifth Circuit Appeal Court granted a stay of the Texas district court’s preliminary injunction pending the outcome of FinCEN’s ongoing appeal. This effectively reinstated the Beneficial Ownership Reporting Requirement with a slightly extended deadline.
However, on December 26, 2024, a different panel of the Fifth Circuit Appeal Court vacated the order to stay the Texas injunction. This once again eliminated the reporting requirements for companies that fall under the scope of the CTA while FInCEN indicated that companies could voluntarily submit their reports by January 13, 2025. The Fifth Circuit also issued a briefing schedule for the appeal at that time, which set the first oral arguments to be heard on March 25, 2025.
On December 31, 2024, the Department of Justice, on behalf of the Treasury Department (FinCEN), filed an emergency application with the Supreme Court, seeking a further stay of the Texas injunction pending the ongoing appeal.
In response, the Supreme Court ordered the other parties to the litigation to submit responses to the emergency application by January 10, 2025. It’s expected that the Fifth Circuit Appeal Court’s decision on the stay could come as early as January 13, 2025. If the stay is granted and beneficial ownership reporting requirements are reinstated, it is likely treasury will again extend the filing deadlines for companies that fall under the purview of the CTA.
Meanwhile, many companies are waiting to file their reports until further guidance is issued by FinCEN or the court issues a decision on the current emergency application.
FinCEN’s Guidance
As our friends at Aptt Law LLC can share, since January 2, 2025, FinCEN has issued the following guidelines regarding the CTA and reporting requirements:
“[…] In the meantime, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. is once again in effect. FinCEN is complying with—and will continue to comply with—the district court’s order for as long as it remains in effect. As a result, reporting companies are not currently required to file beneficial ownership information with FinCEN. Reporting companies may continue to voluntarily submit beneficial ownership information reports.”
This guidance provides clarity, assuring businesses that no penalties will apply for non-compliance while the injunction remains in effect, for now.
What Does This Mean For Your Business?
While the current pause provides temporary relief, businesses should use this time to get organized, ensure their BOI is complete and ready to file should the Supreme Court grant the Department of Justice’s emergency application, and stay informed about future developments.
At its core, Texas Top Cop Shop, Inc. v. Garland underscores the challenges small businesses face when navigating complex regulatory requirements. Whether you choose to voluntarily file your BOI now or wait for the courts’ next steps, being prepared will save you time and stress.
Need help navigating the CTA or preparing your Beneficial Ownership Information? Contact an attorney near you for help.
