The whipsaw continues….
January 7, 2025
Author: Alex Gold
The U.S. Court of Appeals for the Fifth Circuit has once again disrupted Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA). On December 26, 2024, the Fifth Circuit vacated its prior December 23 order that had granted a stay of a nationwide preliminary injunction issued in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.). This decision effectively suspends BOI filing deadlines for reporting companies with the Financial Crimes Enforcement Network (FinCEN).
Case Background
The legal battle began on December 3, 2024, when the U.S. District Court for the Eastern District of Texas, Sherman Division, issued a nationwide preliminary injunction halting the enforcement of BOI reporting requirements. The plaintiffs in Texas Top Cop Shop argued that the CTA’s reporting mandates imposed undue burdens on small businesses and violated constitutional protections.
The Department of Justice (DOJ) promptly appealed the injunction, seeking either a full stay of the district court’s decision or a narrowing of its scope to cover only the named plaintiffs. The district court denied this request on December 17, 2024.
On December 23, 2024, a Fifth Circuit panel temporarily granted the DOJ’s motion to stay the injunction, allowing BOI reporting requirements to proceed. However, just three days later, a different Fifth Circuit panel vacated this stay, reinstating the nationwide injunction. As a result, reporting companies are currently not required to submit BOI reports while the appeal is pending.
Implications for Reporting Companies
The reinstated injunction means that BOI reporting deadlines are effectively suspended. According to FinCEN’s website, companies may voluntarily submit BOI reports but are not obligated to do so at this time.
This ongoing legal uncertainty has significant implications for businesses, particularly small and mid-sized companies that are most affected by the CTA’s requirements. Many are left in a state of limbo, unsure whether to invest resources in compliance efforts or await further legal clarity.
What Comes Next?
The appeal in Texas Top Cop Shop remains ongoing, with the Fifth Circuit set to consider the case in full. The outcome could shape the future of BOI reporting under the CTA, potentially setting a precedent for how similar regulations are implemented and challenged.
In the meantime, companies should:
- Monitor updates from FinCEN and the courts to stay informed of any changes.
- Evaluate whether voluntary compliance with BOI reporting requirements aligns with their risk management strategies.
- Seek legal counsel to navigate the evolving regulatory landscape.
Conclusion
The Fifth Circuit’s December 26 decision underscores the volatile nature of BOI reporting under the CTA. While the injunction remains in effect, businesses must remain vigilant as this case progresses. The legal landscape surrounding BOI reporting continues to evolve, and staying proactive will be key to ensuring compliance and mitigating potential risks.
For further updates, refer to the case docket: Texas Top Cop Shop, Inc., et al. v. Garland, et al., Fifth Circuit Court of Appeals, Case No. 24-40792.
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