On January 23, 2025, the U.S. Supreme Court stayed a nationwide preliminary injunction barring the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) from enforcing the Corporate Transparency Act of 2021 (CTA). While that theoretically allowed for enforcement to move forward, the CTA remains stayed due to another nationwide injunction issued by a different District Court. The new administration recently filed a motion to stay that injunction as well, and given the Supreme Court’s ruling, a second stay appears likely to be issued in the near future. As a practical matter, companies should expect enforcement of the CTA to resume sometime in the next 30-60 days.
The CTA requires domestic entities and foreign entities registered to do business in the U.S. to file reports with FinCEN that identify the individuals who directly or indirectly own or control the entity and provide detailed personal information about those individuals. Previously, FinCEN has said that the CTA is “part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.” In 2022, FinCEN promulgated regulations implementing the CTA’s reporting requirements. 31 C.F.R. § 1010.380.
The nationwide injunction at issue in the recent Supreme Court case was issued on December 3, 2024 by the U.S. District Court for the Eastern District of Texas in the case Texas Top Cop Shop v. Garland,[1] with the court holding that the CTA likely exceeds Congress’s enumerated powers under the U.S. Constitution.
In response to the Texas Top Cop Shop injunction, FinCEN extended the January 1, 2025 deadline for filing most beneficial ownership reports.[2] The Supreme Court’s stay came after an emergency application by the government and remains in effect until a decision on appeal by the U.S. Court of Appeals for the Fifth Circuit, where briefing will be completed by February 28, 2025, and oral argument is scheduled for March 25, 2025.
Despite the Supreme Court’s stay, however, the CTA’s reporting obligations currently remain on hold because, on January 7, 2025, a different judge in the Eastern District of Texas issued a separate preliminary injunction in the case Smith v. U.S. Department of the Treasury.[3] The Smith injunction technically only applies to the plaintiffs in that case, but the court also ordered a nationwide stay of the regulations implementing the CTA. On February 5, 2024, the government appealed the Smith decision and, at the same time, asked the District Court to lift its injunction while the case is under appeal, citing the Supreme Court’s stay of the Texas Top Cop Shop injunction. At the least, the government asked the Smith court to lift its stay of FinCEN’s CTA regulations “and allow the government to act freely with respect to all but the named plaintiffs.”
Despite the appeal of the Smith decision, however, the government’s submission to the District Court signaled a potential change in CTA enforcement. The government stated that if the court does grant a stay, FinCEN intends to extend the deadline for CTA compliance again by 30 days and that:
During that period, FinCEN will assess whether it is appropriate to modify the CTA’s reporting requirements to alleviate the burden on low-risk entities while prioritizing enforcement to address the most significant risks to U.S. national security. Staying the grant of preliminary relief will help facilitate that process.
FinCEN has updated its website accordingly. This possible change is not surprising. In May 2024, now Vice President Vance was co-sponsor of a proposed “Repealing Big Brother Overreach Act” that would have repealed the CTA and, on January 24, 2025, the day after the Supreme Court’s stay of the Texas Top Cop Shop injunction, a nationwide coalition of small businesses wrote asking President Trump and Vice President Vance to delay enforcement of the CTA, perhaps indefinitely.
On February 7, 2025, however, the administration sent a clear signal regarding its intent to defend the constitutionality of the CTA, filing a brief with the Fourth Circuit urging the court to affirm the decision of the District Court for the Eastern District of Virginia, which concluded in October 2024 that the CTA was likely constitutional. Similar appeals are currently pending in the Ninth Circuit (where the lower court also held that the CTA was likely constitutional) and the Eleventh Circuit (where the lower court concluded the opposite).[4]
Most recently, on February 10, 2025, the U.S. House of Representatives passed H.R. 736, which would give FinCEN the ability to extend the due date for CTA filings for entities formed or registered before January 1, 2024 out as far as January 1, 2026. The bill passed unanimously, with 408 votes in favor, 0 votes against, and 25 members not voting.
Given the likelihood that CTA enforcement will resume within the next few months, it may be prudent for companies required to file beneficial ownership reports under either FinCEN’s current regulations, or yet-to-be-determined modifications, to have ready information needed for those reports in the eventuality that they will have to file.
[1] Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-478 (E.D. Texas, Dec. 3, 2024). The case was renamed Texas Top Cop Shop, Inc., et al. v. McHenry, et al. after James McHenry became the Acting U.S. Attorney General on Jan. 20, 2025. The injunction decision can be found at https://law.justia.com/cases/federal/district-courts/texas/txedce/4:2024cv00478/230466/30/
[2] FinCEN extended to January 13, 2025 the deadline for reporting companies created or registered to do business in a State prior to January 1, 2024. The CTA deadline for reporting companies created or registered during 2024 is 90 calendar days after notice that their creation or registration is effective, and the deadline for companies created or registered on or after January 1, 2025 is 30 days after such notice. After the Texas Top Cop Shop decision, FinCEN extended until January 13, 2025 the deadline for companies created or registered on or after September 4, 2024 and gave reporting companies created or registered between December 3, 2024 and December 23, 2024 an additional 21 days from their original filing deadline.
[3] Smith et al v. United States Department of the Treasury et al., 6:24-cv-00336 (E.D. Texas, Jan. 7, 2024). The decision can be found at https://law.justia.com/cases/federal/district-courts/texas/txedce/6:2024cv00336/232897/30/
[4] Community Associations Institute v. Yellen, No. 24-2118 (4th Cir.) (appeal from U.S. District Court for the Eastern District of Virginia denying plaintiffs’ motion for a preliminary injunction, available at https://law.justia.com/cases/federal/district-courts/virginia/vaedce/1:2024cv01597/559803/40/); Firestone v. Yellen, No. 24-6979 (9th Cir.) (same from U.S. District Court for the District of Oregon, available at https://law.justia.com/cases/federal/district-courts/oregon/ordce/3:2024cv01034/180581/18/); and National Small Business United v. Yellen, No. 24-10736 (11th Cir.) (appeal from U.S. District Court for the Northern District of Alabama granting summary judgment to plaintiffs holding CTA unconstitutional, available at https://law.justia.com/cases/federal/district-courts/alabama/alndce/5:2022cv01448/183445/51/).
