You may recently have seen news stories about a decision of the United States Supreme Court with respect to the Corporate Transparency Act (the “CTA”). The situation is somewhat complicated, but we wanted to make sure you have some solid and current information, as we have observed what appears to be a great deal of misinformation and misinterpretation being circulated. But jumping ahead to the punchline, as of this writing, there exists no obligation to file either initial or updated beneficial ownership information reports. That said, the situation is in flux, and the reporting obligation could be reinstated at any time.
As we have discussed in previous SKO Insiders, the CTA requires most businesses either organized or qualified to transact business in the United States to report to FinCEN, an office of the Treasury, as to who are their “beneficial owners“ and in certain instances their “company applicants”; that report is referred to as a “BOIR.“ These rules initially went into effect on January 1, 2024, and companies pre-existing that date had until January 1, 2025 to file their initial reports. Last July, SKO attorneys Allison Donovan and Tom Rutledge published a comprehensive review of the CTA including as to its filing deadlines.
More than a dozen lawsuits have been filed across the country challenging the constitutionality of the CTA. The results have been a mixed bag; in several of the lawsuits, the trial courts found that the CTA is unconstitutional, while in other suits, other courts have determined that it is constitutional. Last December, in one of those lawsuits out of Texas, in a case styled Texas Top Cop Shop, the judge issued a nationwide injunction against the CTA and its related reporting regulations, finding the CTA unconstitutional. That decision and the nationwide injunction was then appealed to the Fifth Circuit Court of Appeals, and from there an emergency appeal was made to the U.S. Supreme Court. It was in this case that last week the Supreme Court issued an opinion, essentially striking down the preliminary injunction that had been issued by the Texas Top Cop Shop trial court. Tom Rutledge has co-authored an article on these developments.
From there, one could easily assume that the CTA is again enforceable and that BOIRs must be filed. However, there is an additional case named Smith v. U.S. Department of the Treasury that muddies the waters. Earlier this month in the Smith case, which likewise challenges the CTA on the basis that it does not fall within Congress’ authority under the Commerce Clause, the court issued a curious preliminary injunction, precluding the enforcement of the CTA statute itself against the plaintiffs but also granting a nationwide injunction against enforcement of the reporting rules adopted under the CTA. As of this writing, no appeal has been filed in the Smith case, so notwithstanding the Supreme Court’s decision last week in Texas Top Cop Shop, the Smith injunction remains in effect nationwide against the CTA’s reporting regulations. Note that it is the reporting regulations, and not the CTA statute itself, that details what must be in a BOIR and what are the filing deadlines.
On January 24, 2025, FinCEN posted the following alert:
“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.
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On January 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in Texas (Texas Top Cop Shop, Inc. v. McHenry—formerly, Texas Top Cop Shop v. Garland). As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
So, what happens now in the Smith case we cannot say. There exist a number of paths including that: (i) the government could ask the judge, in light of last week’s Supreme Court ruling, to reconsider the preliminary injunction granted; (ii) the government could file an appeal and immediately ask the Fifth Circuit to apply last week’s Supreme Court ruling; (iii) the judge who issued that Smith preliminary injunction of his own volition (sua sponte) could decide to revisit his decision and perhaps reverse it; (iv) the judge who issued the Smith preliminary injunction could ask the parties to that lawsuit to provide additional briefing as to the impact of last week Supreme Court ruling on the preliminary junction; or (v) something else. Regardless of what does happen, members of the SKO CTA practice group will be carefully following those developments.
In addition, as we reported to you last March in a lawsuit named National Small Business United, an Alabama federal district court found that the CTA is unconstitutional. That case is on appeal to the 11th Circuit Court of Appeals, and we await its decision.
To recap, as of the time we write this SKO insider, it is not required that companies file and update BOIRs. That could, however, quickly change, and if it does, we will reach out to you with further communications.
