On December 31, 2024, the U.S. Department of Justice (DOJ) filed an emergency petition with the U.S. Supreme Court, requesting a stay of the injunction enjoining enforcement of the Corporate Transparency Act (CTA) and its implementing regulations, including the requirement that reporting companies submit Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN).
What does this mean TODAY for you and your business?
Until further notice, the CTA cannot be enforced, and reporting companies will not be penalized for failing to submit BOI reports while this litigation is pending. However, developments in this case are moving fast, and it is possible the injunction could be lifted and enforcement of the compliance obligations would resume with a rapidly approaching deadline.
What impact does this Supreme Court petition have on the CTA?
At this time, nothing has changed since our update provided on December 27. The injunction preventing the CTA and its reporting requirements from being enforced is still in place, so if you haven’t yet filed a BOI, you don’t need to do anything … yet. However, the government’s petition was filed on the Supreme Court’s emergency docket, so it is at least theoretically possible that the Court could agree with the DOJ and allow mandatory BOI reporting to resume within the next few days or weeks.
How did we get here?
Essentially, there was a reporting obligation, then there was an injunction, and then there wasn’t, and now there is again. Keep in mind, this is just a temporary pause and more updates are still to come. The legal debate continues with the Supreme Court being asked to weigh in next.
A quick timeline overview:
The case in question is Texas Top Cop Shop v. Garland, E.D. Tex., No. 4:24-cv-00478, which was initially filed in the U.S. District Court for the Eastern District of Texas on May 28, 2024. In addition to the primary complaint challenging the constitutionality of the CTA on multiple grounds, the plaintiffs filed a Motion for Preliminary Injunction, which, if granted, would pause enforcement of the CTA, including the requirement that reporting companies submit BOI reports to FinCEN, while the case is litigated on the merits of the parties’ respective arguments.
A preliminary injunction may generally be awarded upon motion by a party which establishes (1) that the moving party is substantially likely to win the case based on the merits; (2) that there is a substantial threat that the moving party would suffer irreparable harm if the court does not grant the injunction; (3) that the threatened irreparable harm outweighs any damage the injunction might cause to the non-moving party; and (4) that granting the injunction would not harm the public interest.
On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted the preliminary injunction, stating, in relevant part, “The CTA is likely unconstitutional as outside of Congress’ power.” Importantly, the preliminary injunction applies to all reporting companies nationwide, regardless of whether such reporting companies are parties to the pending litigation.
On December 5, 2024, the defendants filed a Notice of Appeal and on December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit issued an order granting a stay of the previously issued preliminary injunction, allowing enforcement of the CTA and its reporting obligations to continue. Days later, on December 26, 2024, the Fifth Circuit issued another order vacating the stay of the injunction, “in order to preserve the constitutional status quo while the merits panel consider the parties’ weighty substantive arguments.”
On December 31, 2024, the U.S. Department of Justice filed an Application for a Stay of the Injunction with the United States Supreme Court, requesting that SCOTUS step in and opine not only on the preliminary injunction at issue in this case, but also on the issue of whether federal district courts may lawfully issue universal or nationwide preliminary injunctions at all.
What happens next?
The government’s application to SCOTUS was submitted to the Court’s emergency docket, making it possible that SCOTUS could issue an opinion at any time granting the application, meaning the injunction would be lifted and enforcement would resume, or denying the application, meaning the injunction would remain in place. In either case, the preliminary injunction would remain preliminary, meaning the ultimate question of whether the CTA and its reporting obligations are constitutional at all would still need to be resolved by the lower courts.
Contact us
While the back-and-forth nature of this legal battle is unusual and dizzying, the actual filing process itself is relatively simple. The rules for determining which entities must file and what information must be filed can be complicated. Nemphos Braue attorneys can help you determine which of your entities are “reporting companies” under the CTA and what BOI will need to be disclosed.
Call us at 410-321-8200, email any of our attorneys directly or use our online contact form anytime.
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