DOJ Asks Supreme Court to Lift Block on CTA After Beneficial Ownership Information Reporting Was Halted
The US Department of Justice has filed a petition with the US Supreme Court, asking the court to overturn an injunction that currently blocks the enforcement of the Corporate Transparency Act (CTA), or to limit its application to the plaintiffs in the lawsuit, following an order issued late last week by the 5th US Circuit Court of Appeals (Petition No. 24A filed 31 December 2024).
Report from our correspondent Jannica Santos, Attorney
This order reinstated a nationwide preliminary injunction against the CTA, halting its enforcement and allowing companies to pause filing beneficial ownership information (BOI) reports until the court reaches a decision on the merits of the appeal.
The CTA, enacted in 2021, requires companies to disclose certain information about their beneficial owners, founders and registrants to the FinCEN, in an effort to prevent and combat tax fraud, money laundering, terrorist financing and other illicit activity.
The US District Court for the Eastern District of Texas initially issued the preliminary injunction on 3 December 2024, ruling that the CTA exceeds Congress's constitutional powers. This injunction halted CTA implementation nationwide, effectively suspending FinCEN's authority to enforce its BOI reporting requirements (seeSecond Federal District Court Blocks Implementation of Corporate Transparency Act (5 December 2024) and Note). In response, the Department of Justice, representing the Department of the Treasury, filed a Notice of Appeal, seeking to overturn the ruling and requesting a stay to temporarily lift the injunction while the appeal is resolved (seeDOJ Appeals Texas Court's Nationwide Injunction Against Corporate Transparency Act (9 December 2024)).
On 23 December 2024, a panel of the United States Court of Appeals for the Fifth Circuit temporarily reinstated the CTA by granting an emergency stay of the injunction issued by the District Court, allowing BOI reporting requirements to resume while the appellate court considers the government's expedited appeal on the injunction's merits (seeFifth Circuit Court of Appeals Temporarily Reinstates Corporate Transparency Act (24 December 2024)). As a result, the FinCEN issued an alert, informing the public that BOI reporting requirements were temporarily back in effect and announcing extensions to BOI reporting deadlines to provide businesses with additional time to comply (seeFinCEN Extends Beneficial Ownership Information Reporting Deadlines (27 December 2024)).
However, the reinstatement of the reporting requirements was brief, as a different panel of the US Court of Appeals for the Fifth Circuit vacated the stay on 26 December 2024, restoring the District Court's injunction and once again pausing the implementation of the CTA. In its Order, the court explained that this decision was made to preserve the constitutional status quo while the merits panel evaluates the parties' significant substantive arguments.
Despite the suspension of mandatory reporting, FinCEN clarified in a 27 December 2024 alert, that it would continue to accept voluntary BOI reports during this period.
The case is Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478 (E.D. Tex. 2024).
Note: The decision aligns with a March 2024 ruling by the US District Court for the Northern District of Alabama, which also found the CTA unconstitutional on the grounds of exceeding Congress's enumerated powers. That ruling was appealed to the 11th Circuit Court of Appeals. However, other federal courts have upheld the constitutionality of the CTA. The US District Courts for the Eastern District of Virginia and the District of Oregon have denied motions for preliminary injunctions against the CTA, indicating that the plaintiffs in those cases failed to demonstrate a likelihood of success on the merits of their claims that the CTA is unconstitutional.