Corporate Transparency Act
McHenry v. Texas Top Cop Shop Inc.
Date: Jan. 23, 2025
Issue: Whether the Corporate Transparency Act (CTA) and the final rule implementing the CTA (the Reporting Rule) are unconstitutional.
Case Summary: The U.S. Supreme Court issued a stay of the nationwide preliminary injunction that blocked the enforcement of the CTA.
The CTA requires companies doing business in the United States to report information about the individuals who ultimately control or own them. The CTA aims to provide law enforcement with information to detect, prevent, and punish terrorism, money laundering, and other misconduct through business entities. In 2022, the Financial Crimes Enforcement Network (FinCEN) issued the Reporting Rule, providing that certain businesses must file a beneficial ownership information (BOI) report with FinCEN and disclose details about the individuals who have substantial ownership or control over the company.
On May 28, 2024, six plaintiffs — an individual, three commercial businesses, a political organization, and a national trade association — sued U.S. Attorney General Merrick Garland, the U.S. Department of the Treasury, FinCEN, and their directors (collectively, the government), to challenge the constitutionality of the CTA and the Reporting Rule. In December, a Fifth Circuit motions panel granted the government’s emergency motion for a stay pending appeal. However, three days later, a Fifth Circuit merits panel vacated the stay and reinstated the nationwide injunction. The government then appealed to the Supreme Court for a stay of the Fifth Circuit’s injunction.
Justice Samuel Alito granted the stay, which will remain in place until the Fifth Circuit rules on the constitutionality of the CTA and the resolution of a petition for a writ of certiorari if one is filed on time. If the Supreme Court denies certiorari, the stay will automatically end. If the Court grants certiorari, the stay will expire upon the Supreme Court’s final judgment. In a concurrence, Justice Neil Gorsuch agreed that the government deserves a stay of the injunction. Justice Gorsuch explained, however, that he would take the case now to definitively decide whether a district court can issue universal injunctive relief.
Justice Ketanji Brown Jackson dissented, arguing that emergency relief is unwarranted because the government failed to show sufficient urgency to justify the Court’s intervention. She explained her reasoning with two key points. First, the Fifth Circuit had already expedited its review of the government’s appeal. Second, the government delayed enforcing the law for nearly four years after Congress passed it, even though it knew that the harms it now points to as reasons for the Court’s involvement could have arisen during that period. Justice Jackson stressed that the government provided no evidence that a more serious or significant injury would result if the CTA’s implementation is further delayed while the case proceeds in lower courts. For these reasons, she would deny the application and allow the appellate process to continue.
A separate nationwide order issued by a different Texas federal judge in Smith v. U.S. Department of the Treasury remains in place. Reporting companies are not currently required to file BOI reports with FinCEN despite the U.S. Supreme Court’s decision. According to FinCEN, reporting companies are not liable if they do not file this information while the Smith order remains in force. In any event, reporting companies may continue to submit BOI reports voluntarily.
Bottom Line: The government’s opening brief is due Feb. 7, 2025.
Document: Opinion
