On December 9, the Notice of Appeal that the government had filed with the Fifth Circuit was docketed (Top Cop Fifth Circuit Litigation). On December 13, the government filed a Motion for a stay of the preliminary injunction pending appeal, and a Fifth Circuit motion panel requested that the plaintiffs-appellees file a response by December 17, and the government file a reply by December 19. On December 17, the plaintiffs-appellees filed a Response/Opposition, and the government filed a Reply on December 19. On December 23, the motions panel in an Unpublished Order granted the government’s motion for stay of the preliminary injunction pending appeal, and did not extend the due date for CTA filings. Shortly after the release of the Unpublished Order, FinCEN issued a BOI Alert (December 23, 2024) extending the filing dates for information reporting to January 13, 2025 or later. On December 24, the plaintiffs-appellees filed a motion for rehearing en banc, in response to which the court issued a Court Directive that a Response/Opposition to the motion for rehearing should be filed by December 31.
The lifting of the preliminary injunction was short-lived. On December 26, 2024, a merits panel of the Fifth Circuit vacated the stay portion of the order of the motions panel, effectively reinstating the preliminary injunction. The merits panel established a briefing schedule (concluding on February 28, 2025) and oral arguments (on March 25, 2025) for a determination of the government’s motion to stay the preliminary injunction. The plaintiffs-appellees’ motion for en banc hearing was dismissed as moot.
Continuing the flurry of holiday season activity, on December 31, 2024, while the government’s motion for a stay of the preliminary injunction was still pending before the Fifth Circuit, the Solicitor General, on behalf of the government, commenced an action in the United States Supreme Court (the Top Cop Supreme Court Litigation) by filing an Application for a Stay of the Injunction Issued By the United States District Court for the Eastern District of Texas (“Supreme Court Application for Stay”). The Supreme Court Application for Stay argues:
(a) the district court gave insufficient deference to the presumed validity of laws enacted by Congress;
(b) that the CTA is within Congress’ authority under the Commerce Clause;
(c) that the Constitutional Necessary and Proper Clause supports Congress’ authority to adopt the CTA;
(d) established law supports that laws may require that persons provide requested information;
(e) the plaintiffs have not satisfied the high standards required for a facial challenge to the constitutionality of a statute;
(f) the equities support lifting the stay in that the district court failed to account for the harm to the Government in not allowing the CTA to be enforced as a tool for addressing identified problems such as domestic and international money-laundering and tax evasion (Petition pp. 26-30);
(g) that the merits panel of the Fifth Circuit did not apply the correct standards in lifting the stay of the injunction; and
(h) the district court’s nationwide injunction is unwarranted.
The Supreme Court Application for Stay also invited the Supreme Court to grant certiorari to consider the proper standard for the issuance of a nationwide injunction. As to the nationwide reach of the preliminary injunction, the Supreme Court Application for Stay at p. 4 argues:
At a minimum, this Court should narrow the district court’s vastly overbroad injunction. A court of equity may grant relief only to the parties before it. The district court violated that principle by issuing a universal injunction purporting to enjoin the Act itself and forbidding the enforcement of the Act even against non-parties. Several Members of this Court have recognized that such universal relief contradicts Article III and established equitable principles and have urged clarification of these principles in an appropriate case — but the Court’s antecedent determination on a threshold procedural issue or the merits in prior cases has obviated the need to re-solve the remedial question. Because the lower courts need guidance on the propriety of universal injunctions, this Court may additionally wish to treat this application as a petition for a writ of certiorari before judgment presenting the question whether the district court erred in entering preliminary relief on a universal basis.
The Supreme Court Application for Stay was assigned initially Justice Alito, and on January 3 he issued instructions to the plaintiffs-appellees to respond not later than 4:00 pm on Friday, January 10, 2025. The Supreme Court Application for Stay was assigned initially Justice Alito, and on January 3 he issued instructions to the plaintiffs-appellees to respond not later than 4:00 pm on Friday, January 10, 2025. That Response Brief was filed well before the deadline, and on January 13 the Government filed a Reply Brief.
Thus, the current enforceability and ultimate validity is currently before three federal courts, none of which has reached a final judgment of constitutionality of the statute. After a month of legal contention, the preliminary injunction issued in the Top Cop District Court Litigation is still in effect although that may change at any time. If the preliminary injunction is lifted, when the information disclosures that would have been filed during the hiatus will be subject to whatever administrative grace FinCEN or the acting court chooses to afford them.
The balance of this article discusses the background of the CTA and its implementing reporting regulations and the machinations they have undergone over the year-end holidays, and how this history may offer a clue to what will happen to the CTA in the future.
The CTA: A Grinch-ish “Gift”
As of December 1, 2024, the CTA as supplemented by final regulations prescribed under it (“Reporting Rule”) require each reporting company created or registered on or after January 1, 2024 (a new entity) to file a beneficial ownership information report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCEN”), the bureau of the U.S. Department of the Treasury that administers the CTA, on or before ninety days after creation or registration if created or registered in 2024 and thirty days after creation or registration if created or registered after 2024.
Under the CTA, the Reporting Rule aims to “minimize burdens on reporting companies associated with the collection of beneficial ownership information, including by eliminating duplicative requirements,” while at the same time aiming to “ensure the beneficial ownership information reported to FinCEN is accurate, complete, and highly useful.” Thus, while there are still many questions about the application of the reporting requirements to reporting companies, FinCEN is actively considering new regulations to make the information it collects more useful to the banking industry.
Nonetheless, the CTA has been riddled with nuanced problems and counterintuitive applications that have been an irritant (not always minor) for even some simple business organizations. For larger, more sophisticated organizations, the CTA (particularly as implemented by the Reporting Rule) can be a cipher for a number of organizations that, without any obvious reason, are subject to the statute, including (i) homeowners associations that may exempt from BOIR reporting depending upon the federal tax exemption for which they qualify, (ii) companies that have separated their employees from the organization in which the company’s value is located, (iii) companies in bankruptcy and subject to the oversight of a Chapter 7 bankruptcy trustee, (iv) companies that have wound up their affairs, (v) limited liability companies (“LLCs”) whose organization was never completed by the admission of a member, (vii) limited liability partnerships, and (viii) companies having multiple classes of ownership. These issues have earned the CTA pride of place as a program that Project 2025 would like to exterminate.
On-Again, Off-Again, On-Again Christmas Celebrations
Top Cop is not the only litigation has been filed challenging the CTA and the Reporting Rule. The CTA has been under attack from many small businesses and small business associations as being unconstitutional either as an enactment beyond the power of Congress or an invasion of the constitutional rights of small businesses and their owners. Numerous cases in which these issues are being considered are currently pending in federal courts around the country.
In one case in the early part of 2024, National Small Business United v. Yellen (“NSBU”), the trial court, a federal district court in Alabama, entered a final declaratory judgment concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the CTA against those plaintiffs. FinCEN then issued an alert (“NSBU Alert”) to the effect that FinCEN would not enforce the CTA against the plaintiffs as long as the judgment remains in effect. The government appealed NSBU (although not the injunction separately) to the U.S. Court of Appeals for the Eleventh Circuit; the case is ongoing. In addition, FinCEN extended the filing deadlines for reporting companies located in the areas designated both by the Federal Emergency Management Agency (“FEMA”) as qualifying for individual or public assistance and by the Internal Revenue Service as eligible for tax-filing relief. In all other respects, the Reporting Rule continued to govern the BOIR reporting regime.
Later, in the fall of 2024, two other federal district courts declined to issue an injunction and preliminarily found the CTA constitutional.
At the same time the government was filing its appeal to the Fifth Circuit, Congress was considering a one-year extension on the filing deadline for reporting companies formed or created before January 1, 2024 (“existing entities”) as part of a continuing resolution, but the extension was deleted from the final enactment of the American Relief Act, 2025.
On Christmas Eve, after a hectic preholiday week punctuated by furious activities by all three branches of government, the infelicitous rolling out of the principal aspects of the CTA came to rest with some reporting companies formed after September 3, 2024 being granted by FinCEN an extension of time within which to file their initial BOIRs and the balance of the CTA reporting regime continuing in effect. Based upon BOI Alert (December 23, 2024), the due dates for initial BOIRs were set as follows: