Corporate Transparency Act
Smith v. U.S. Department of the Treasury
Date: Feb. 17, 2025
Issue: Judge Kernodle’s decision to lift his preliminary injunction allowing enforcement of the Corporate Transparency Act (CTA) to resume.
Case Summary: Judge Jeremy Kernodle of the Eastern District of Texas lifted a preliminary injunction that had paused enforcement of the CTA and the Reporting Rule.
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.
Samantha Smith and Robert Means (plaintiffs) sued the U.S. Department of the Treasury and FinCEN, arguing that the CTA exceeded the limitations of Article I, Section 8 of the U.S. Constitution and violated the Administrative Procedure Act. On Jan. 7, 2025, Judge Kernodle granted Plaintiffs’ motion for a preliminary injunction, ruling Plaintiffs showed the CTA and the Reporting Rule were likely unconstitutional, faced a substantial risk of irreparable harm without an injunction, and that the balance of equities and public interest favored granting preliminary relief.
Separately, In McHenry v. Texas Top Cop, six plaintiffs — an individual, three 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, challenging the constitutionality of the CTA and the Reporting Rule. On Dec. 3, 2024, Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction, blocking enforcement of the CTA and the Reporting Rule. Later that month, a Fifth Circuit motions panel granted the government’s emergency request to pause the injunction during the appeal. However, a Fifth Circuit merits panel three days later overturned the stay and reinstated the nationwide injunction. On appeal, the U.S. Supreme Court stayed the nationwide preliminary injunction on Jan. 23, 2025. Justice Samuel Alito issued the stay, which will remain in effect until the Fifth Circuit rules on the CTA’s constitutionality and the resolution of a timely petition for a writ of certiorari.
At the same time, the separate nationwide order from Smith v. U.S. Department of the Treasury remained in place. FinCEN clarified that reporting companies were not yet required to file BOI reports, despite the Supreme Court’s decision, but could submit them voluntarily. However, considering the Supreme Court’s order, Judge Kernodle granted a stay of the injunction he issued pending the disposition of the appeal.
On Feb. 27, 2025, FinCEN announced that it will not impose fines, penalties, or other enforcement actions against companies that fail to file or update BOI reports under the CTA by the current deadlines. FinCEN will delay any actions until a forthcoming interim final rule takes effect and the new deadlines in that rule have passed.
Bottom Line: FinCEN announced that it intends to issue an interim final rule that extends reporting deadlines no later than March 21, 2025.
Document: Order
