…And a Happy New Year! Fifth Circuit of Appeals Reverses Course, Reinstates Injunction and Prohibits Enforcement of CTA

By David H. Freedman and Jordan M. Small

After issuing an Order on Monday, December 23, 2024 which stayed the preliminary injunction issued by the Eastern District of Texas that had enjoined enforcement of the Corporate Transparency Act (“CTA”), the Fifth Circuit Court of Appeals again reversed course on December 26, 2024, vacating its own order and reinstating the injunction, once again relieving millions of businesses from the Act’s reporting requirements.

The Order, issued by the merits panel of the Court, found that in order to preserve the constitutional status quo while the panel considers the substantive arguments from each party, the order granting the Government’s motion to stay the preliminary injunction enjoining enforcement of the CTA should be vacated.

As it has with previous rulings, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued the following response to the ruling and providing an update on the effects of the ongoing litigation:

Alert: Alert [December 27, 2024]: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only

In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.

The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.

On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction. Texas Top Cop Shop is only one of several cases that have challenged the Corporate Transparency Act (CTA) pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional. For that reason, the Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024 and separately sought of stay of the injunction pending that appeal.

On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. FinCEN immediately issued an alert notifying the public of this ruling, and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, FinCEN extended reporting deadlines. On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.

This development marks another chapter in the rollercoaster saga that is the challenges to the implementation and enforcement of the CTA. Next, the Fifth Circuit will hear oral arguments on the merits of the injunction on March 25, 2025.

As such, Reporting Companies are not currently required to file Beneficial Ownership Information Reports (BOIR). However, Reporting Companies who are wary of the potential re-imposition of deadlines may continue to file reports voluntarily, and those who choose not to file at this time should remain prepared for future obligations. 

We will continue to follow these developments and provide further updates as they are available on our CTA blog and other social media.