Under Whiplash Maneuver, the Court Issues Temporary Suspension of Reporting Obligations for Beneficial Ownership Information (BOI)
Hear this tale once more, if you've not listened before: the temporary halt in enforcing the filing of Beneficial Ownership Information (BOI) under the Corporate Transparency Act (CTA) has been challenged again in court.
In a recent decision, the court has temporarily halted the government from implementing the BOI reporting requirements under the CTA, reversing an earlier ruling that had granted a stay.
A stay is a court order that halts a legal proceeding for a limited period.
Here's a brief recap of the events.
Last-Minute Rush
On December 23, 2024, a unanimous bench of the Fifth Circuit Court granted the government's urgent request for a stay of the preliminary injunction while they appealed the decision. This came after a judge in Texas had previously ruled that a nationwide preliminary injunction, preventing the Financial Crimes Enforcement Network (FinCEN) from enforcing the CTA, would remain in effect.
The reversal meant that businesses required to file BOI reports now had to comply with the regulations while the government's appeal proceeded, unless they were exempt.
Urgent Request
The court's ruling was in response to an urgent petition filed by the government with the U.S. Court of Appeals for the Fifth Circuit, asking for a prompt stay. Citing that the injunction preventing FinCEN from enforcing the CTA was nationwide, the government argued, "given the broad nature of this injunction, the balance of harms tips sharply in favor of the government."
The court granted the government's urgent request for a stay in a unanimous ruling on December 23.
In the opinion, Circuit Judges, Stewart, Haynes, and Higginson, criticized the district court ruling, stating, "The government has made a compelling case against the petitioners' challenge to the CTA." This meant that the court recognized that "The statute is likely constitutional when it requires corporations engaged in interstate commerce to disclose their beneficial owner and applicant information to FinCEN."
The panel seemed unconcerned with concerns of a rush to file, writing, "The petitioners argue that lifting the court's injunction just before the deadline would burden them unduly. However, they fail to acknowledge that they filed suit in May 2024 and the court's preliminary injunction has only been in place for less than three weeks. Compared to the nearly four years they have had to prepare since the CTA was enacted, and the year since FinCEN announced the reporting deadline, this seems like a small delay."
You can access the court's December 23 order here.
FinCEN's Response
In response, FinCEN updated their website just before the Christmas break, extending the filing deadline.
The law, as written, requires a reporting company created or registered before January 1, 2024, to file its initial report by January 1, 2025. This deadline was extended to January 13, 2025, for companies that had been formed or registered prior to 2024. Furthermore, for reporting companies created or registered on or after September 4, 2024, with filing deadlines between December 3, 2024, and December 23, 2024, the deadline was extended until January 13, 2025. Lastly, for reporting companies created or registered between December 3, 2024, and December 23, 2024, an additional 21 days were granted for filing.
Reporting companies that qualified for disaster relief were granted extended deadlines that exceeded January 13, 2025. These companies should abide by the later deadline.
(For more information on the reporting requirements, see this previous article).
FinCEN also announced that the plaintiffs in National Small Business United v. Yellen—Isaac Winkles, reporting companies listed in Isaac Winkles' name as beneficial owners or applicants, the National Small Business Association, and members of the National Small Business Association as of March 1, 2024—were not currently required to report their BOI information to FinCEN.
Unexpected Turn
On December 26, the Fifth Circuit issued another order, once again staying the injunction. Noting the government's appeal and the December 23 ruling, the court explained that the appeal had been fast-tracked to the next available oral argument panel.
(A preliminary injunction—and any related rulings—is not the final resolution of a case.)
However, the court wrote, "In order to preserve the constitutional status quo while the merits panel considers the weighty substantive arguments between the parties, the part of the motions-panel order granting the Government's motion to stay the district court's preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED."
(Vacate is a legal term that means setting aside a previous judgment or order.)
This means that the part of the ruling that had stayed the injunction had been overturned—meaning that the injunction was once again in effect.
You can read the unpublished order here.
Reactions
The unexpected turn of events caught many off guard, including myself. Reactions on social media ranged from disbelief to relief to anger.
Molly Day, the Vice President of Public Affairs for the National Small Business Association, expressed in a statement to Our Website, "Any hold-up to this unconstitutional regulation is a positive thing."
She went on, "Even though the initial reversal of the Fifth Circuit Court's temporary injunction suggests that small businesses have had plenty of time to adjust to the rule, considering the surge of activity on Capitol Hill and in the NSBA's lawsuit and those that followed, it's no surprise there's widespread uncertainty about when the BOI reports are expected. We're grateful for this recent delay and urge the courts—and lawmakers—to offer some sort of clarity and expand a more extended delay, eventually repealing or overturning this regulation."
Previous History
In the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., Judge Amos Mazzant, an Obama appointee, granted the NFIB's request for a preliminary injunction, preventing the U.S. Department of Treasury from enforcing the CTA's reporting requirements. Since NFIB and its nearly 300,000 members were part of this lawsuit, the judge halted the enforcement of the BOI reporting requirements nationwide.
On December 17, 2024, Mazzant affirmed that a nationwide preliminary injunction barring FinCEN from enforcing the CTA would persist. Mazzant had previously granted the plaintiffs' request for a preliminary injunction, impeding the U.S. Department of Treasury from implementing the CTA's reporting requirements.
This preliminary injunction was challenged at the Fifth Circuit, which led to the current sequence of legal proceedings.
Latest Actions
The most recent move suggests that the injunction is active again—the original district court injunction hindering FinnCEN from enforcing the BOI reporting requirements remains in place.
The injunction is not expected to interfere with FinnCEN's extension. However, if the Fifth Circuit court proceedings continue beyond the January 13, 2025, deadline (or other deadlines), as it appears to be (continuing reading), it should follow that the CTA should not be applicable, absent any additional judgments.
The court proceedings remain in progress. In response to a request for a rehearing en banc, the court requested that the government file a response by noon on December 31, 2024.
(En banc is French—surprisingly, not Latin—for on the bench. It signifies that all judges of a specific court will hear a case. This occurs when a matter is particularly intricate or significant.)
A portion of the December 23 order also included the approval of the motion to expedite the appeal. As of December 27, briefs are now due in February, and the case is scheduled for oral arguments on March 25, 2025.
If this seems complex, it’s because there are numerous components. The injunction was preliminary—the merits of the case have not yet been heard in the Fifth Circuit. That's what's moving through the system now.
The other aspects are mainly related to process (for example, the stay of the preliminary injunction was requested by the government while the matter is being dealt with).
A request for comment from FinnCEN was not promptly answered.
Other Court Rulings
The Top Shop case is not the only one in progress in the courts. In addition to National Small Business United v. Yellen cited by FinnCEN, two other courts—the United States Court of Appeals for the Fourth Circuit and the United States Court of Appeals for the Ninth Circuit—also have CTA case appeals pending.
(Note: Updated to reflect a statement from the NSBA and additional details about the next steps.)
- Following the court's decision, businesses subject to BOI reporting requirements under the Corporate Transparency Act (CTA) must comply with the regulations while the government's appeal proceeds.
- In the court's opinion, the panel recognized the government's compelling case against the challenge to the CTA, stating that the statute is likely constitutional when requiring corporations engaged in interstate commerce to disclose their beneficial owner and applicant information to FinCEN.
- The BOI reporting requirements under the CTA were temporarily halted due to a challenge in court, but the government's urgent request for a stay while they appealed the decision was granted, allowing businesses to comply with the regulations.
- Given the reversal of the earlier ruling, businesses now subject to BOI reporting under the CTA are required to comply with the regulations while the government's appeal proceeds, as instructed by the court's decision.
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