On December 23, 2024, the Fifth Circuit Court of Appeals issued a critical ruling in Texas Top Cop Shop Inc. v. Garland, granting a temporary stay on the nationwide injunction that had blocked enforcement of the Corporate Transparency Act (CTA) and FinCEN's Beneficial Ownership Information Report (BOIR).

This means that the nationwide injunction blocking the enforcement of the CTA and BOIR regulations issued earlier this month by a Federal Court in Texas has been effectively overturned.

As a result of the Fifth Circuit's emergency stay, the January 1, 2025 deadline for the Corporate Transparency Act — which requires over 33 million businesses in the United States to file beneficial ownership information or face penalties of up to $10,000 — has been reinstated.

The Corporate Transparency Act, enacted in 2021, requires certain corporations and limited liability companies to disclose their beneficial owners and applicants for incorporation to the Financial Crimes Enforcement Network (FinCEN). Its aim? To combat illicit financial activities like money laundering, terrorism financing, and tax fraud by eliminating the veil of anonymity for businesses engaging in these activities.

The CTA includes exemptions for certain categories of organizations, such as those that are large public entities or already regulated by other federal agencies. For those that are subject to its provisions, compliance involves filing a report with FinCEN, a task estimated by the government to take about 90 minutes for a typical company.

With the reporting deadline set for January 1, 2025, a group of businesses—including Texas Top Cop Shop Inc. and the Libertarian Party of Mississippi—filed suit, arguing that the CTA was unconstitutional. On December 3, 2024, a federal district court in Texas agreed and issued a nationwide injunction blocking the CTA’s enforcement. This sweeping decision sparked immediate controversy because:

1. No party had specifically requested a nationwide injunction.
2. Other courts had previously upheld the CTA’s constitutionality or limited injunctions to the specific parties before them.

The federal government promptly appealed the ruling and sought an emergency stay to allow the law to go into effect as planned.*

*Three other district courts have assessed the CTA's constitutionality. Two held that the CTA is likely constitutional and denied motions for preliminary injunctions. Firestone v. Yellen, 2024 WL 4250192, at *10 (D. Ore. Sept. 20, 2024); Cmty. Ass'ns Inst. v. Yellen, 2024 WL 4571412, at *14 (E.D. Va. Oct. 24, 2024)). One held that it is unconstitutional, but only issued an injunction that covered the plaintiffs in that case. Nat'l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260, 1289 (N.D. Ala. 2024).

The Fifth Circuit’s temporary stay allows the CTA to remain enforceable while the appeal proceeds. In its ruling, the court focused on four key factors outlined in Nken v. Holder (2009) for determining whether a stay is warranted:

1. Likelihood of Success on the Merits
   The court concluded that the government made a strong case that the CTA is constitutional. Congress passed the law under its Commerce Clause authority, regulating economic activity with clear implications for interstate commerce. The court emphasized that corporate entities, unlike individuals, are inherently engaged in economic activity, making disclosure requirements both reasonable and within Congress’s power.

2. Irreparable Harm to the Government
   The court recognized that halting enforcement of a duly enacted statute inflicts harm on the government and undermines its ability to combat financial crime. Delaying enforcement also jeopardizes international efforts to align anti-money laundering regulations.

3. Minimal Harm to Businesses
   The court found the businesses’ claims of harm unpersuasive. Filing a report is a straightforward process with a relatively low cost—estimated at about $85 for most companies. Furthermore, businesses have had nearly four years to prepare since the law was enacted and a full year since FinCEN set the compliance deadline.

4. Public Interest
   Combatting financial crime and protecting national security were deemed to outweigh the minimal burden placed on businesses. The court noted the significant public benefit of transparency in corporate ownership, particularly in addressing gaps in anti-money laundering and counterterrorism efforts.

For businesses subject to the CTA, the immediate takeaway is clear: compliance with the January 1, 2025, reporting deadline is back on the table. Companies should prioritize filing their beneficial ownership reports to avoid potential penalties of up to $10,000.

Fortunately, FinCEN has announced on its website that they will modify the January 1st 2025 deadline and now reporting companies have until January 13th, 2025 to file their BOI Report with FinCEN. 

Find more details about FinCEN's announcements here.

The Fifth Circuit’s stay reaffirms the CTA’s validity for now and the original January 1st 2025 deadline for the BOI Report, emphasizing Congress’s authority to regulate corporate transparency as part of its broader mission to enhance corproate transparency in the United states.

As this case unfolds, it serves as a reminder for businesses in the United states to remain vigilant in understanding and complying with evolving legal compliance requirements. 

Contact Della Torre Law PLLC