Fifth Circuit stays injunction halting Corporate Transparency Act’s enforcement; Treasury updates deadline to January 13, 2025 for certain companies

Introduction

On December 23, 2024, the US Court of Appeals for the Fifth Circuit issued an order granting the government's emergency motion for a stay pending appeal of the preliminary injunction against the Corporate Transparency Act (CTA), which the US District Court for the Eastern District of Texas granted nearly three weeks ago.

In Texas Top Cop Shop Inc. v. Garland, 4:24-cv-478 (E.D. Tex. Dec. 3, 2024), the district court ruled the CTA is likely unconstitutional and issued a nationwide injunction halting its enforcement (for more on the Eastern District of Texas ruling, see our previous alert here), including enforcement of the CTA’s January 1, 2025 reporting deadline for certain non-exempt reporting companies formed before January 1, 2024.

The Fifth Circuit’s stay order reinstates the requirements of the CTA (for more information about the CTA, see our previous alert here). Following the Fifth Circuit’s ruling, in an act of holiday generosity, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) granted an extension until January 13, 2025 to many – but not all – reporting companies to file their beneficial owner reports.

Impacted reporting companies are therefore encouraged to continue gathering relevant beneficial ownership information and preparing to file so that they may meet the new January 13, 2025 deadline.

The Fifth Circuit’s opinion

The Fifth Circuit's decision to grant the stay was based on the four-factor test established in Nken v. Holder, 556 U.S. 418 (2009): (1) whether the stay applicant has made a strong showing that it is likely to succeed on the merits, (2) whether the applicant will be irreparably injured absent a stay, (3) whether issuance of the stay will substantially injure the other parties interested in the proceedings, and (4) where the public interest lies.

On the first factor, the court found that the government made a strong showing that it is likely to succeed on the merits of the case, particularly in defending the constitutionality of the CTA under the Commerce Clause. The court emphasized that the CTA regulated “anonymous ownership and operation of business” – activities traditionally understood as interstate commerce and therefore within Congress’ Commerce Clause power. The court also highlighted provisions within the CTA that excluded many dormant companies from its definition of a “reporting company” that would be obligated to follow the CTA. The court explained that such provisions would likely distinguish the CTA from the provisions of the Affordable Care Act, which were struck down in Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012), and render the CTA at least facially valid.

Moving to the second factor, the Fifth Circuit determined that the government would suffer irreparable harm if the stay were not granted, as enjoining the CTA would prevent the government from enforcing a statute designed to combat financial crimes, thereby undermining US national security, anti-money laundering (AML), and countering terrorist financing (CTF) efforts. The court noted that any time a government is enjoined from effectuating statutes enacted by elected representatives, it suffers a form of irreparable injury.

For the third and fourth factors, the Fifth Circuit found that the harm to businesses from complying with the CTA to be minimal and outweighed by the significant public interest in enforcement of the CTA. The court noted that FinCEN estimated that typical filings would not be time-consuming or costly and that the plaintiffs failed to demonstrate otherwise. The court found more compelling the public interest in preventing and combating financial crime and protecting US national security. The government had argued that delaying enforcement of the CTA would undercut efforts to encourage other countries to adopt recommendations put forward by the Financial Action Task Force, the international AML standard-setting body. The Fifth Circuit, in a nod to this argument, found that “a last-minute nationwide preliminary injunction would undermine our ability to push other countries to reform their anti-money laundering and counterterrorism regimes and to address the most fundamental gap in our own regime.” Balancing the equities and considerations of public interest both supported granting the government’s emergency motion to stay the injunction pending appeal. On balance, the court concluded that the equities favored granting the stay requested by the government.

FinCEN grants deadline extensions

Recognizing that reporting companies may need additional time to comply given the nearly three-week period during which the preliminary injunction was in effect, FinCEN publicized certain extensions for reporting companies as follows:

• Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information (BOI) reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
  
  
• Reporting companies created or registered on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 also have until January 13, 2025 to file their initial BOI reports with FinCEN.
  
  
• Reporting companies created or registered on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial BOI reports with FinCEN.

FinCEN did not provide an extension for reporting companies that are created or registered on or after January 1, 2025, which still have 30 days to file their initial BOI reports with FinCEN after receiving actual or public notice that their creation or registration is effective. Furthermore, reporting companies created or registered on or after September 23, 2024, which had a reporting deadline after December 23, 2024 must report by their original reporting date.

Next steps for reporting companies

The Fifth Circuit's order granted the government’s request for a stay – thereby lifting the district court’s nationwide preliminary injunction while the government’s appeal is pending. The order also expedited the appeal to the next available oral argument panel, once briefing is completed. Plaintiffs have petitioned for emergency en banc review of the stay order and asked the Fifth Circuit to decide their petition by January 6, 2025.

En banc review – meaning review by all of the active members of the court – is rarely granted. It would be particularly extraordinary here, where plaintiffs seek review of an interim stay order.

Furthermore, no congressional fix is anticipated before January 13, 2025. The Continuing Resolution passed this past weekend did not include any extension to the CTA, and Congress is now on recess through the new year. While it is possible that the new Congress or incoming administration might provide some relief, this cannot be relied upon, as it would come only after the January 13, 2025 deadline. Accordingly, reporting companies should plan to comply with the CTA's reporting requirements, including filing BOI reports by January 13, 2025.

DLA Piper’s CTA working group will continue to closely monitor this litigation along with other updates relating to the CTA.

For additional guidance regarding the CTA, the ongoing litigation and the status of the CTA, or related state requirements, please contact your DLA Piper relationship partner or any of the authors.