Federal Appeals Court Reinstates Preliminary Injunction to Halt Corporate Transparency Act

The Corporate Transparency Act (CTA) and its requirements for reporting Beneficial Ownership Information (BOI) has again been put on hold after the full panel of the U.S. Court of Appeals for the Fifth Circuit overturned its motion panel and reinstated the nationwide preliminary injunction halting enforcement of the CTA and its BOI reporting requirement. This action late on December 26th comes just three days after the court’s motion panel’s initial action.

As it now stands, businesses are not required to file BOI statements according to FinCEN, but that could change again. Attorneys are advising their clients to file BOI to avoid potential penalties of $500 per day, up to $10,000.

Looking ahead, the court will evaluate the substantive arguments presented by the parties involved, with oral arguments in this case scheduled for March 25, 2025.

FinCEN, the federal agency responsible for enforcing the CTA, issued the following alert following the court’s reversal:

[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 December23, 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.

For more information about BOI reporting requirements, click here.