On December 26, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit issued a pivotal decision in Texas Top Cop Shop, Inc. v. Garland, vacating an earlier order from the same court that had temporarily allowed the enforcement of the Corporate Transparency Act (CTA). This latest ruling reinstates the preliminary injunction issued by the U.S. District Court for the Eastern District of Texas, effectively halting the requirement for reporting companies to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN).
The December 26 ruling and its impact
The Fifth Circuit’s latest decision overturned the December 23, 2024, order that had stayed the district court’s injunction. As a result, the original December 3, 2024, ruling blocking the nationwide enforcement of the CTA remains in effect.
Practically, this means:
- Reporting companies are not currently required to file beneficial ownership information with FinCEN.
- No penalties will be imposed on companies for non-compliance while the injunction is in place.
- Companies may still voluntarily submit beneficial ownership reports if they choose to do so.
Background of Texas Top Cop Shop, Inc. v. Garland
The legal battle over the CTA has sparked numerous challenges in courts across the U.S., with some upholding the law’s constitutionality and others granting injunctions. In this case, the Eastern District of Texas sided with the plaintiffs, arguing that the CTA failed to meet certain constitutional standards.
The Fifth Circuit’s December 26 decision underscores the ongoing legal uncertainty surrounding the CTA, even as the Department of the Treasury seeks to overturn the district court’s ruling.
The Government’s next steps
The Department of the Treasury and the Department of Justice remain steadfast in their position that the CTA is constitutional, a view supported by rulings from other courts, including those in Virginia and Oregon. The government has formally appealed the district Court’s decision and continues to litigate to reinstate the CTA’s reporting requirements.
Following the December 23 decision, FinCEN had extended compliance deadlines to provide flexibility to reporting companies. However, the December 26 ruling has reversed those temporary measures, leaving companies without any immediate obligation to comply.
Implications for reporting Companies
Reporting companies should closely monitor updates from FinCEN and court rulings that may further alter the compliance landscape. While the current obligation to report beneficial ownership information is suspended, this is a temporary situation subject to change as the government’s appeal progresses.
The Fifth Circuit’s December 26 ruling adds another layer of complexity to the implementation of the Corporate Transparency Act. Although reporting companies are not currently required to file beneficial ownership information, the government is actively working to reinstate the CTA’s requirements.
As litigation continues, companies must stay informed and prepared for potential regulatory changes. The final outcome of the CTA’s enforcement will depend on the resolution of pending appeals and ongoing legal challenges, leaving the situation uncertain for all stakeholders involved.