On Dec. 26, 2024, the Fifth Circuit Court of Appeals issued another order in the contentious case of Texas Top Cop Shop, Inc. v. Garland, which concerns the Corporate Transparency Act (the “Act”). This marks the third major ruling in the case within the past month and temporarily stays the beneficial ownership information (“BOI”) reporting requirements mandated under the Act.
The Act initially required companies formed prior to Jan. 1, 2024, to submit their BOI reports by Jan. 1, 2025. However, in Texas Top Cop Shop, which challenged the Act on three constitutional grounds, the BOI reporting requirements and enforcement of the Act were stayed nationwide pending a final decision on the merits. On Dec. 23, the Fifth Circuit Court of Appeals granted a temporary stay on the injunction, effectively reinstating the BOI reporting requirements. In response, the Financial Crimes Enforcement Network, the agency responsible for enforcing the Act, issued new deadlines for reporting companies, extending most reporting deadlines to Jan. 13, 2025.
Following widespread confusion and efforts by small businesses to prepare BOI reports before the revised deadlines, the Fifth Circuit issued a subsequent three-page opinion on Dec. 26, reinstating the nationwide injunction. The court, noting that the Dec. 23 ruling included an expedited timeline for oral arguments, reasoned in its latest opinion that reinstating the reporting deadlines before resolving the merits of the case would disrupt the constitutional status quo. While the appeal remains expedited, enforcement of the Act and BOI reporting deadlines are currently enjoined.
It is important to emphasize that the temporary nationwide injunction does not repeal the Act. This most recent action by the Fifth Circuit also serves to underscore the substantial judicial uncertainty about the Act’s interpretation and future. Companies that fail to report by the deadlines risk violating compliance with law covenants, even if the reporting requirement is temporarily unenforceable. Unless and until the Act is declared unconstitutional, it remains law. Reporting companies should be prepared to promptly submit BOI reports if the injunction is lifted. In the meanwhile, reporting companies should also take into account the ongoing uncertainty surrounding enforcement when determining whether to file, notwithstanding the reinstated injunction.
This document is intended to provide you with general information regarding recent appellate decisions regarding the Corporate Transparency Act. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.