Appeals court reinstates injunction on CTA beneficial ownership information reporting

A federal appeals court has reversed itself, reinstating an injunction on beneficial ownership information reporting by businesses only days after lifting it.

On Monday, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of a preliminary injunction by a federal district court in Texas that had temporarily paused a requirement for filing BOI reports with FinCEN under the Corporate Transparency Act of 2019 in the case of Texas Top Cop Shop Inc. v. Garland. The plaintiffs petitioned the full appeals court for an en banc rehearing to consider additional issues in the case. They argued that the panel’s decision conflicted with a 2012 Supreme Court decision in the case of National Federation of Independent Businesses v. Sebelius, ignored potential violations of the First and Fourth Amendments, and improperly discounted serious harms that the plaintiffs and the public would suffer. They also argued that the decision to reinstate the Jan. 1 reporting deadline, which was only a few days away, disregarded the interests of millions of entities subject to the CTA. The law aims to deter criminals from using shell companies for illicit purposes such as money laundering and terrorism financing.

The appeals court issued an order Thursday reinstating the injunction, and noted the original order had expedited the appeal to the next available oral argument panel, scheduled for March 25. 

“The merits panel now has the appeal, which remains expedited, and a briefing schedule will issue forthwith,” said the court. “However, in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED.”

Earlier this week, after the appeals court panel initially lifted the injunction, the Treasury Department announced an extension of time for businesses to file to meet the beneficial ownership information reporting deadline. Reporting companies that were created or registered prior to Jan. 1, 2024, were given until Jan. 13, 2025, to file their initial beneficial ownership information reports with the Treasury Department’s Financial Crimes Enforcement Network, as opposed to the Jan. 1, 2025, deadline. The American Institute of CPAs and state CPA societies have been asking FinCEN to delay the BOI reporting requirements. Now the appeals court appears to have delayed the reporting requirement indefinitely.

FinCEN reacted to the move by announcing Friday that companies are not currently required to file the reports but can still file them voluntarily: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

FinCEN explained some of the back and forth this week by pointing out that different panels on the appeals court had issued the seemingly contradictory rulings: “On Dec. 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. FinCEN immediately issued an alert notifying the public of this ruling, and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, FinCEN extended reporting deadlines. On Dec. 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s Dec. 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of Dec. 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.”

The reprieve will give businesses and their accountants more time to put together the beneficial ownership reports if they haven’t filed them already.

“The Fifth Circuit’s latest development and the scheduling of oral arguments for March 25, 2025 is mostly frustrating but also a welcome delay for a filing still needed by a number of entity owners and managers,” said Bill Kambas, private client and tax partner at international law firm Withers, in an email. “Many are trying to read the political tea leaves of an incoming administration and a ‘red sweep’ through the U.S. federal government. Efforts at governmental efficiency and reducing regulatory burdens will inevitably put pressure on the ultimate future of the Corporate Transparency Act. Clients have been working for months to organize and digest the ownership and management of their operations, most challenging being those with tiered ownership and complex or sophisticated and dynamic management systems. In every case that I have been involved with, well-meaning and law-abiding owners and managers have done their best to evaluate their ownership and management structures in the context of the rules and regulations of the corporate transparency act. While not all filings have been submitted, considerable efforts were made to prepare the data and be ready to transfer it in a secure and protected manner.”

Businesses and their accountants may be feeling a sense of whiplash after the conflicting moves by the courts.

“The decision by the Fifth Circuit Court of Appeals is curious in its support legally, but practically throws compliance by covered corporate entities into chaos,” said Joseph Lynyak, a banking attorney at Dorsey & Whitney, in an emailed statement. “The CTA is not well understood by the business community, and there are now both domestic and reporting companies that may now be completely confused in regard to their respective CTA obligations. The extended compliance time periods announced by FinCEN less than 48 hours ago now appear suspended, but as a result of the holiday weekend a response by FinCEN addressing the compliance obligations of reporting companies is clearly necessary. While covered companies are able to evaluate risk in regard to civil liability, the criminal component arising from CTA noncompliance may practically be unmanageable.”