backOn January 23, 2025, the U.S. Supreme Court granted the government’s motion to lift the nationwide injunction against enforcement of the Corporate Transparency Act (CTA) in Texas Top Cop Shop v. McHenry (formerly, Texas Top Cop Shop v. Garland).1McHenry v. Texas Top Cop Shop, Inc., No. 24A653, 2025 WL 272062 (Jan. 23, 2025).The Supreme Court’s action means that the injunction has been lifted in the Top Cop Shop case at least until the Top Cop Shop case is considered on the merits before the U.S. Court of Appeals for the Fifth Circuit. However, that does not mean that companies are now required to comply with the CTA’s reporting requirements. A separate decision, issued by the Eastern District of Texas on January 7 in Smith v. U.S. Department of the Treasury, stayed the effective date of the regulations implementing CTA’s reporting requirements. As a result, compliance with the CTA requirements continues to be suspended unless and until the government files an appeal and convinces either the Fifth Circuit or the Supreme Court to overturn the stay in Smith. It remains to be seen whether the Trump administration will file an appeal in the Smith case and to what extent it will defend the CTA in the face of these constitutional challenges.
FinCEN’s Response
On January 24, 2025, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a statement clarifying that due to the stay issued in Smith, reporting companies are not currently required to file beneficial ownership information (BOI) with FinCEN despite the Supreme Court lifting the injunction issued in Texas Top Cop Shop. 2 FinCEN Alert, Ongoing Litigation – Texas Top Cop Shop, Inc. et al. v. McHenry, et al., No. 4:24-cv-00478 (E.D. Tex.) & Voluntary Submissions (Jan. 24, 2025), https://www.fincen.gov/boi. FinCEN also confirmed that reporting companies will not be subject to liability for failing to file while the Smith stay remains in effect. As in earlier statements, FinCEN reiterated that reporting companies may continue to voluntarily submit reports in the interim.
Background
The CTA went into effect on January 1, 2024. In seeking to implement its reporting requirements, FinCEN established by regulation a January 1, 2025, deadline for non-exempt companies created or registered to conduct business in the United States before January 1, 2024 to report BOI to FinCEN. The stay issued in Smith applies to reporting companies subject to this deadline, as well as any reporting companies created or registered after January 1, 2024, subject to a 90-day filing deadline.
Supreme Court’s Opinion
The Supreme Court granted the government’s application to stay the injunction pending the disposition of the appeal in the Fifth Circuit and the disposition of any timely filed petition for a writ of certiorari. Notably, the Supreme Court’s stay decision was accompanied by two separate opinions. Justice Gorsuch, joined by Justice Alito, concurred in granting the stay application but wrote separately to note that he would have granted certiorari to review “whether a district court may issue universal injunctive relief.” Justice Jackson issued a separate opinion, dissenting from the grant of the stay. Justice Jackson explained that, in her view, the government had not justified its request for a stay. She noted that the Fifth Circuit has expedited its consideration of the government’s appeal, and the government “deferred implementation on its own accord—setting an enforcement date of nearly four years after Congress enacted the law—despite the fact that the harms it now says warrant our involvement were likely to occur during that period.”
Upcoming Litigation Deadlines in Texas Top Cop Shop
While the Supreme Court’s action on the government’s stay application lifts the district court’s grant of injunctive relief, the Fifth Circuit’s briefing schedule from December 27, 2024, on the merits of the expedited appeal remains in place:
- Appellants’ (U.S. government) brief is due on February 7, 2025
- Appellees’ (Plaintiffs-Appellee) brief is due on February 21, 2025
- Appellants’ (U.S. government) reply brief is due on February 28, 2025
- Oral argument is scheduled for March 25, 2025
Our previous client alerts on this case can be found here, here, and here.
District Court Findings in Smith
The plaintiffs in Smith are two individuals who formed limited liability companies under Texas law to hold real property.3Complaint, Smith v. Dep’t of Treasury, No. 6:24-cv-336-JDK, 2024 WL 4172431 (E.D. Tex. Sept. 12, 2024).They argue the CTA violates the U.S. Constitution because it exceeds Congress’s enumerated powers. They contend that regulating corporate formation is not “a regulation of a channel nor an instrumentality of interstate commerce” and corporate entities formed under state law do not per se substantially affect interstate commerce. They also argue the CTA violates the Administrative Procedure Act.
In its decision granting a preliminary injunction, the Court found, the Smith plaintiffs’ constitutional arguments are likely to succeed on the merits.4Smith v. Dep’t of Treasury, No. 6:24-cv-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025).Therefore, “[c]ompelling individuals to comply with a law that is unconstitutional is irreparable harm,” and further, “incurring unrecoverable costs of compliance with federal law constitutes irreparable harm.” The Court also found that the “balance of equities and public interest support preliminary relief.” While the Court only enjoined the government from enforcing the CTA against the named plaintiffs, it also exercised its authority under the Administrative Procedure Act to stay the government’s implementing regulations while the lawsuit is pending, which effectively pauses FinCEN from requiring companies to report BOI, until the litigation is resolved.
Conclusion
We are continuing to monitor both the Smith and Texas Top Cop Shop litigation. In the meantime, enforcement of the CTA and its implementing regulations continues to be suspended. Reporting companies may continue to voluntarily submit BOI reports, and FinCEN continues to accept filings on a voluntary basis while the litigation is ongoing. Considering the uncertainty of the government’s next steps in Smith, we continue to advise reporting companies to be prepared to file their BOI reports with FinCEN if and when the requirements are reinstated. King & Spalding is closely monitoring any developments that may affect CTA compliance and enforceability and will continue to issue updated alerts.
