The back-and-forth legal battle over enforcement of the Corporate Transparency Act and its requirement for businesses to report their beneficial ownership information continued into the final days of 2024. On Dec. 31, the U.S. Department of Justice fired the latest volley, with an emergency application with the Supreme Court for a stay of the injunction originally issued by the District Court for the Eastern District of Texas.
On Dec. 23, the Fifth Circuit Court of Appeals lifted a nationwide injunction issued by the district court judge earlier in December in a Texas lawsuit challenging the CTA, which requires covered businesses to report their beneficial ownership information to Treasury’s Financial Crimes Enforcement Network. Three days later, on Dec. 26, “in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments,” the panel of Fifth Circuit judges that will consider the merits of the government’s appeal of the preliminary injunction vacated that decision and once again enjoined enforcement of the reporting rule and CTA, putting the reporting requirement on hold once again.
DOJ’s New Year’s Eve filing asked the high court to stay the district court’s injunction, reasoning that the government “is likely to succeed on the merits of respondents’ claim” and that CTA’s reporting requirements are important to the federal response to money laundering, tax fraud and the financing of terrorism, falling “comfortably within Congress’s authority under the Commerce Clause to regulate economic activities that substantially affect interstate commerce.”
In the alternative, DOJ asked the court to narrow the “district court’s vastly overbroad injunction,.” limiting it only to plaintiffs in this case. If the Supreme Court decides to act, its decision could affect lower courts’ ability to issue nationwide injunctions affecting non-plaintiffs.
The litigation is separate from another matter currently pending before the Eleventh Circuit. Independent from this nationwide injunction, also exempt from any filing deadlines are members of the National Small Business Association, in which an injunction applying to its members in a separate lawsuit remains in place. As FinCEN notes on its website, several other federal courts are also considering CTA challenges, including the District of Oregon, the Western District of Michigan and the Eastern District of Virginia.
According to recent poll data from Wolters Kluwer, as of mid-November, only about a quarter of the estimated 32.5 million covered businesses had registered. Thirty-seven percent of firms were waiting until closer to the deadline and 12% said they had insufficient resources to do the filing. Meanwhile, 9% of businesses believed they were not covered by the rule, and 32% were unsure whether the rule applied to them. FinCEN reported that as of Dec. 2, nearly 10 million businesses had reported their beneficial ownership information to FinCEN.
Despite the government’s appeal to the Supreme Court, at this time, reporting companies are still not required to report.
