In the continuing saga of the fate of the Corporate Transparency Act, the New Civil Liberties Alliance filed an amicus curiae brief with the Supreme Court on Jan. 13, 2025, in Garland v. Texas Top Cop Shop. The brief urges the court to reject the government’s request to stay a preliminary injunction against the enforcement of the CTA and its beneficial ownership information reporting mandate.
The CTA mandates that organizations that have filed for incorporation under state law submit detailed reports to the Treasury’s Financial Crimes Enforcement Network, or FinCEN, with civil and criminal penalties available to the government to punish those who fail to comply, either by omitting information or even accidentally submitting false information.
“These invasive requirements would apply to over 30 million nonprofit and for-profit organizations nationwide, and they apply prior to any commercial transactions or other type of economic activity,” according to the NCLA.
Stefani Reynolds/Bloomberg
“The government claims the Constitution’s Commerce Clause authorizes the CTA, but Commerce Clause regulations must target economic activity, which the CTA does not regulate,” the NCLA’s brief noted. “The only thing that triggers disclosure under the CTA is coming into existence by filing incorporation paperwork with a state government, which is not economic activity because it does not involve producing, consuming or exchanging any good or service. The government argues that most organizations that incorporate will engage in future economic activity. But the Supreme Court held in the Obamacare case (NFIB v. Sebelius) that the government cannot justify regulation under the Commerce Clause based on anticipated future economic activity.”
The government’s alternative request — to narrow the scope of the nationwide preliminary injunction to only the corporate entities that sued in the Texas Top Cop Shop case — is likewise flawed, according to the NCLA: “The Administrative Procedure Act expressly authorizes the court to ‘postpone’ the Treasury Department’s rule enforcing the CTA, which necessarily extends to the whole country, not just the litigants.”
Jamie Schaeffer, a partner at law firm Perkins Coie, said it’s hard to predict what the court will do.
“The Treasury Department has made multiple alternative requests with broader implications beyond the CTA,” she explained. “One of them is whether it is appropriate for a federal district court to issue a nationwide injunction. Conservative justices generally favor district courts to not have that authority. During the first Trump administration a number of liberal courts took the approach that they had that authority. If the Supreme Court decides that it is not appropriate for a district court to set a nationwide standard, then FinCEN will have to set alternate filing dates. There are a lot of moving parts. We’re advising our clients to be ready to file the BOI Report at a moment’s notice.”
Kevin Granahan, practice management partner at law firm Fox Rothschild, agreed.
“It’s really an unknown,” he said. “And it’s also unknown what Congress might do. Prior to the holidays, part of the funding package included a provision that would push back the deadline by one year. The final bill did not include that delay, so the question now is whether Congress will take action, especially given the change in administrations. President Trump could tell the DOJ to simply drop the appeals, which would be the death knell for the CTA.”
As for a decision on the merits of the Commerce Clause argument, NCLA litigation counsel Sheng Li said, “It is true that most corporations will engage in commerce after coming into existence. But so will most everyone alive. If the mere propensity for commerce can be the basis for regulation under the Commerce Clause, then that power would be boundless, and any notion of limited government would cease.”
Credit: Source link
