Fifth Circuit
Originally, I reported that beneficial ownership information ("BOI") reporting requirements under the Corporate Transparency Act ("CTA") were back in effect after the SCOTUS decision in the Texas Top Cop Shop case. However, that was not the full story.
A recap of the Texas Top Cop Shop case.
In the Texas Top Cop Shop case, a US District Court for the Eastern District of Texas issued a nationwide injunction against the enforcement of the CTA and its beneficial ownership BOI reporting requirements. However, the Government appealed that decision, and a motions panel of the Fifth Circuit Court stayed the injunction, essentially reinstating the reporting requirements of the CTA. Then, three days later, a merits panel of the Fifth Circuit reversed course and vacated the stay, effectively reinstating the nationwide injunction. The Government then applied to the Supreme Court of the United States (“SCOTUS”) for a stay of the nationwide injunction. SCOTUS did grant the Government’s application for a stay and has lifted the nationwide injunction against the CTA. However, the story does not end there.
The CTA saga continues.
Earlier this month, the saga that is the CTA took another turn when a US District Court for the Eastern District of Texas issued a nationwide stay on the CTA’s Reporting Requirements in a case separate from Texas Top Cop Shop. In Smith v. U.S. Department of Treasury, the court exercised its authority under 5 U.S.C. § 705 and stayed the effective date of the Reporting Rule of the CTA while the lawsuit remains pending. As a result, while there is no nationwide injunction preventing enforcement of the CTA, the Reporting Rule's implementation is still temporarily on hold thanks to the stay in the Smith case.
What is the difference between a stay and an injunction?
Stays and injunctions are similar in that both can effectively prevent certain actions before their legality is fully resolved. However, they achieve this outcome in distinct ways. An injunction is directed at a specific party, with the court ordering them to either take or refrain from taking specific actions. While a stay can be considered a "type of injunction," it operates differently. A stay does not directly target a party’s actions; instead, it temporarily suspends the authority that allows the action, without directly dictating anyone’s behavior.
While both an injunction and a stay effectively achieve the same goal, there are important distinctions between them. For instance, obtaining an injunction against a party is generally more challenging than securing a stay while a lawsuit is ongoing. This is because an injunction requires the court to actively direct a party's actions, whereas a stay simply preserves the status quo until the case is resolved.
Where are we now?
The Government has yet to appeal the issuance of the stay in the Smith case, but the window for filing an appeal has not yet closed. It will be interesting to see how the Fifth Circuit and/or SCOTUS handles the nationwide stay as opposed to the nationwide injunction.
In summary, the latest chapter of the CTA saga confirms that businesses nationwide are not required to file BOI reports. However, businesses are still permitted to voluntarily submit their BOI reports to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Several lawsuits challenging the constitutionality of the CTA remain pending across the country, along with reintroduced legislation aiming to repeal the CTA entirely. It’s clear that the CTA story is far from over, and we will continue to keep you informed on the latest developments.
Tags: CTA, BOI, corporate transparency act, beneficial ownership information, beneficial owners, stay, SCOTUS, Fifth Circuit
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The Corporate Transparency Act ("CTA") has reached the Supreme Court of the United States (“SCOTUS”). On New Year’s Eve, the U.S. Department of Justice submitted an application to SCOTUS, seeking either a stay of the nationwide injunction or, at a minimum, a limitation of the injunction's scope to the plaintiffs specifically named in the Texas Top Cop Shop case.
How Did We Get Here?
Although there have been multiple lawsuits filed to stop the implementation of the CTA, the nationwide injunction at issue stems from the Texas Top Cop Shop v. Garland case arising out of the Eastern District of Texas. Below is a timeline of events:
- May 5, 2024 – Six plaintiffs, including Texas Top Cop Shop, Inc., filed a federal complaint alleging that the CTA’s reporting rule is unconstitutional and asked the court to invalidate the CTA and its reporting requirements.
- June 3, 2024 – Plaintiffs filed a motion for a preliminary injunction seeking to halt the implementation of the CTA’s reporting requirements and deadlines.
- December 3, 2024 – The U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the CTA, concluding that the CTA “appears likely unconstitutional.” The court did not rule on the constitutionality of the CTA but instead focused on whether the Plaintiffs satisfied the proof necessary for being awarded an injunction. See our post regarding the court’s decision to issue an injunction.
- December 9, 2024 – The Government appealed the issuance of the injunction to the U.S. Court of Appeals for the Fifth Circuit.
- December 13, 2024 – The Government filed a motion to stay the injunction issued by the lower court. A stay of an injunction essentially “lifts” or cancels out the injunction.
- December 23, 2024 – A motions panel for the Fifth Circuit granted the Government’s motion and issued a stay on the injunction against the CTA, essentially reinstating the CTA’s reporting requirements. See our post on the motion panel’s decision.
- December 26, 2024 – A merits panel for the Fifth Circuit reversed course and vacated the stay issued by the motions panel, effectively reinstating the injunction against the CTA. See our post on the merit panel’s decision.
- December 31, 2024 – The Government submitted its application to SCOTUS to review the nationwide injunction.
What Happens Next?
SCOTUS may choose to disregard the application and decline to address the challenges to the CTA, leaving the injunction intact. Alternatively, SCOTUS could opt to overturn or narrow the injunction, reinstating the CTA's reporting requirements for numerous businesses across the country. As a result, reporting companies should be prepared to promptly submit the required beneficial ownership information (“BOI”) reports.
Filing BOI Reports
Although there is no current mandate for reporting companies to file BOI reports to the Financial Crimes Enforcement Network (“FinCEN”), voluntary submissions are still being accepted. There is no charge to file a BOI report with FinCEN. Reporting companies can simply visit https://boiefiling.fincen.gov to begin the process of filing their BOI report.
Reporting companies will need the following information: (1) the reporting company’s legal name, (2) tax identification number, (3) jurisdiction of formation, and (4) current U.S. address. For their beneficial owners, reporting companies will need the following information: (1) full legal name, (2) residential address, (3) a form of identification, which must be either a state issued driver’s license, a state/local/tribe-issued ID, a U.S. passport, or a foreign passport, and (4) an image of the identification used in number (3). Note: companies formed after January 1, 2024, will also need their company applicant information. See our law bulletin for more details on reporting requirements.
As previously noted, filing a BOI report is free of charge, and a straightforward LLC with only a few beneficial owners can typically complete and submit the report with ease. However, a reporting company may opt to engage a professional, such as an attorney, accountant, or other third-party, to assist with the process for a fee.
Conclusion
While there have been no significant updates to the CTA, it is essential to stay informed about potential changes on the horizon. The Government's application to SCOTUS could lead to a shift in direction in the near future. As always, we will keep you updated on the latest developments.
Tags: CTA, BOI, beneficial ownership information, corporate transparency act, beneficial owners, SCOTUS, Supreme Court of the United States, Fifth Circuit, injunction
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