Companies are still not required to comply with the Corporate Transparency Act (CTA)—despite a U.S. Supreme Court ruling on Thursday suggesting otherwise.
On January 23, the High Court stayed a December 3 injunction in Texas Top Cop Shop v. McHenry (E.D. Tex., No. 4:24-cv-00478) blocking nationwide enforcement of the CTA. The Supreme Court’s ruling would have cleared the way for requiring companies to resume compliance with the CTA, but a different Texas federal district court judge separately issued a preliminary injunction staying nationwide the effective date of the CTA’s reporting obligations on January 7 in Smith v. United States Department of Treasury (E.D. Tex., No. 6:24-cv-00336). That injunction still stands, because the Supreme Court did not address the injunction in Smith when it stayed the Texas Top Cop Shop injunction. The Texas Top Cop Shop stay will remain in place until the U.S. Court of Appeals for the Fifth Circuit rules on the U.S. government’s appeal of the injunction. Oral arguments are expected to begin on March 25.
Following the Texas Top Cop Shop ruling in December, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) confirmed that reporting companies’ obligations to submit beneficial ownership information remain stayed and companies will not face liability for failing to file their beneficial ownership reports while the Smith preliminary injunction is in force.
When the Texas Top Cop Shop preliminary injunction was first stayed, FinCEN only provided a short, 13-day extension for companies to file their initial beneficial ownership reports, so companies should plan to have similarly limited turnaround time to file if the Smith injunction is stayed or other developments occur.
The CTA’s status is currently unresolved and subject to ongoing legal proceedings. Given the change in the executive branch’s administration, it is unclear what next steps FinCEN will take in these cases. Either way, we expect further developments regarding these two cases and other cases pending throughout the country. In the Texas Top Cop Shop case, the U.S. Court of Appeals for the Fifth Circuit will rule on the U.S. government’s appeal in the coming months. In the Smith case, the government may seek to overturn or narrow the preliminary injunction. Fenwick will continue to provide updates as these legal proceedings progress.
While the CTA’s ultimate enforceability remains uncertain, we encourage you to review the key requirements of the Corporate Transparency Act and consult experienced counsel with questions you may have including preparations you should consider now to be ready to comply with the CTA should compliance requirements be reinstated.
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