On January 23, the U.S. Supreme Court lifted the nationwide injunction entered by the federal district court in the Eastern District of Texas in the case styled Texas Top Cop Shop v. McHenry, which had barred enforcement of the Corporate Transparency Act (CTA), and the beneficial ownership interest reporting rule promulgated thereunder (Reporting Rule). Despite the Supreme Court’s decision, beneficial ownership information reporting pursuant to the Reporting Rule is still not currently required and the Financial Crimes Enforcement division of the U.S. Department of the Treasury (FinCEN) has indicated it will not enforce the Reporting Rule as a result of an order entered in a separate case in the Eastern District of Texas styled Smith v. U.S. Department of Treasury.
The CTA’s enforcement is subject to rapid change due to the recent Supreme Court ruling. Companies who may be subject to the Reporting Rule should stay up to date with further developments and consult with their CTA advisors to understand their obligations now that the Reporting Rule may soon become effective.
Summary of CTA Developments Since December
- December 3, 2024: The U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the CTA in Top Cop Shop based on constitutional grounds.
- December 23, 2024: The U.S. Court of Appeals for the Fifth Circuit stayed Top Cop Shop’s nationwide preliminary injunction – reinstating the CTA and Reporting Rule. In light of the injunction, FinCEN extended certain reporting deadlines.
- December 26, 2024: In a separate order entered by another panel of judges, the Fifth Circuit vacated the portion of its December 23 order lifting the Top Cop Shop injunction – reinstating the district court’s nationwide injunction.
- January 7, 2025: The U.S. District Court for the Eastern District of Texas entered an order staying the effective date of the Reporting Rule pursuant to the Administrative Procedure Act in Smith.
- January 23, 2025: The Supreme Court stayed the Top Cop Shop preliminary injunction after the government filed an emergency application.
- January 24, 2025: FinCEN announced that reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop as long as the Smith order remains in place.
The Supreme Court opinion (found here) did not include any rationale for its decision to stay the Top Cop Shop preliminary injunction. Based on Justice Gorsuch’s concurring opinion and Justice Jackson’s dissent, however, the rationale of at least some of the justices appears to be based on rules of judicial procedure (i.e., the propriety of nationwide injunctions issued by a single federal district court) rather than on the substantive merits of the claims made in Top Cop Shop. The Fifth Circuit has published an expedited schedule for the Top Cop Shop appeal, with briefs to be submitted in February and oral arguments scheduled on March 25. Currently, the U.S. government has not appealed the Smith order.
In its filings before the Supreme Court, the U.S. government signaled that FinCEN intends to extend reporting deadlines should it receive a favorable ruling. And on January 24, FinCEN provided the following guidance regarding the evolving litigation:
“On January 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in Texas (Texas Top Cop Shop, Inc. v. McHenry—formerly, Texas Top Cop Shop v. Garland). As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
For now, the Smith order remains in place, but FinCEN continues to accept voluntary beneficial ownership information reports. Potential reporting companies may reasonably decide to defer any significant CTA compliance measures pending further developments.
Regardless, the CTA landscape is changing quickly and those entities that may have potentially burdensome reporting requirements should be prepared to file on somewhat short notice. Another uncertainty relates to whether the Trump administration will adopt the same enforcement position as the Biden administration. Significantly, many Republican state Attorneys General have filed amicus appellate briefs in the Texas Top Cop Shop case asserting the unconstitutionality of the CTA. Separately, an increasing number of Republicans in Congress are sponsoring and advocating in favor of proposed legislation to repeal the CTA.
Our CTA Task Force will continue to monitor for relevant developments, with periodic updates accessible on our CTA resource page. If you have any questions or need advice about CTA or its application to your business, please contact one of the members of the CTA Task Force or your primary Bass, Berry & Sims attorney.
This alert is not intended to, and does not, provide legal, compliance or other advice to any person, and receipt of this document does not constitute the establishment of an attorney-client relationship. The information and analysis set forth in this document are subject to change based on new regulations and regulatory guidance, and other circumstances. Applicability of the CTA can be subject to a detailed factual analysis. Entities and individuals should consult with their attorney for specific CTA advice.