A Holiday Gift to the Treasury Department: The Corporate Transparency Act Gets a Second Chance

By: Kenneth Ashton, Sarah Hibbard, Brett W. Johnson, Garth D. Stevens, and John G. Weston

On December 23, 2024, the United States Court of Appeals for the Fifth Circuit issued an order granting the Department of Justice’s emergency motion seeking a stay of the nationwide preliminary injunction of the Corporate Transparency Act (CTA) previously granted by the Eastern District of Texas.

As previously reported (prior alerts), the nationwide preliminary injunction, granted by the Eastern District of Texas, (i) enjoined the CTA, (ii) enjoined enforcement of the Reporting Rule by the Financial Crimes Enforcement Network (FinCEN) (the Treasury Department’s enforcement arm), and (iii) stayed the January 1, 2025, compliance deadline for reporting entities formed prior to January 1, 2024, to submit beneficial ownership information (BOI) reports. 

Court of Appeals Order and Preliminary Injunction

Utilizing legal theories that upheld the Affordable Care Act, the Court of Appeals for the Fifth Circuit found that the DOJ had made a “strong” showing that it is likely to succeed on the merits in defending the constitutionality of the CTA. The Court reasoned that the CTA targets illicit financial activity, and in doing so, it regulates anonymous ownership and operation of businesses by requiring certain entities to report their beneficial ownership. Such economic activities the Court said, “are part of an economic class of activities that have a substantial effect on interstate commerce.” Therefore, “…a reporting requirement for entities engaged in these economic activities falls within ‘more than a century of [the Supreme Court’s] Commerce Clause jurisprudence.’” The Court further found that the balance of equities weighs in favor of granting the stay because the harm to the plaintiffs is minimal in light of the public’s urgent interest in combating illegal financial activities and protecting national security. In support of this, the Court cited FinCEN’s estimate that a typical company would spend about $85 worth of time completing and filing the CTA’s required report as the minimal harm to the plaintiffs.

What Does this Mean for CTA Compliance?

Although, the Court’s Order effectively requires reporting companies to comply with their respective original deadlines, FinCEN posted a statement on its website extending the reporting deadline as follows:

Next Steps

The plaintiffs in the underlying case could seek further review by the Fifth Circuit or they could appeal to the United States Supreme Court for relief. 

Impacted entities or other interested non-governmental organizations may consider weighing in and filing an amicus curiae brief in this matter to inform the Fifth Circuit how its forthcoming opinion might impact business operations or other constitutional rights. While an order from the Fifth Circuit and actual filing dates could impact the anticipated timeline, amicus briefs supporting the DOJ are expected to be due as early as February and amicus briefs supporting the small business plaintiffs are expected to be due as early as March. It is unclear whether the Trump administration will continue the appeal. There are also opportunities for congressional outreach regarding congressional action on the CTA. Furthermore, for those entities that have already submitted BOI reports, it is important to understand how the government may utilize the information in such reports, in enforcing other laws. Companies, trade organizations, and other interested parties should take the opportunity to review the impact of the CTA on their operations and determine whether to vocalize any concerns via the courts or through the legislative process.