Authorities Bring Forward Corporate Transparency Act Debate to the Highest Judicial Body
Authorities Bring Forward Corporate Transparency Act Debate to the Highest Judicial Body
Recently, I suggested that the Corporate Transparency Act (CTA) might be making its way to the U.S. Supreme Court. This scenario was put to the test this week.
On December 31, 2024, the Department of Justice filed an application with the supreme court, aiming to put a stop to the temporary nationwide ban that had prohibited the government from enforcing beneficial ownership information (BOI) reporting. If the DOJ's plea is accepted, the government would be permitted to enforce the CTA while any legal proceedings are being processed within the system.
In the application for an extension of the ban, the government argued that the Supremes have historically held a strong presumption that Congressional Acts should continue to operate until the Supreme Court makes a final judgment on the matter. This argument mirrors the DOJ's stance in their initial plea to the Fifth Circuit, which granted the government's request to extend the ban.
Only a few days later, however, a different panel from the Fifth Circuit reversed the original decision, preventing the enforcement of the ban. The back-and-forth movements have left business owners and advisors feeling disoriented and unsettled through the holiday season.
A Historical Chronicle
In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Judge Mazzant from the Eastern District of Texas granted the National Federation of Independent Business (NFIB)'s request for a preliminary injunction, restraining the U.S. Department of Treasury from enforcing the CTA's reporting requirements. Since NFIB and its nearly 300,000 members were involved in the case, the judge barred enforcement of the BOI reporting requirements across the nation.
(Keep in mind that a preliminary injunction, as well as any decisions related to the injunction, do not signify a final resolution of the case.)
On December 17, in an appeal, Judge Mazzant ruled that a nationwide preliminary injunction preventing FinCEN from enforcing the CTA would remain in place.
The government then took the case to the Fifth Circuit. Noting that the preliminary injunction hindered FinCEN from enforcing the CTA nationwide, the government argued, "The scales tip heavily in favor of the government, and any injunction should have been limited to the handful of companies that identified themselves before the district court."
In a ruling on December 23, a Fifth Circuit panel granted the government's emergency application for a stay pending the appeal. In its decision, Circuit Judges Stewart, Haynes, and Higginson criticized the district court ruling, writing, "The government has made a convincing argument against the Businesses' challenge to the CTA."
However, the reversal implied that businesses required to file BOI reports were required to comply while the government's appeal of the underlying case was ongoing, unless they were exempt. In response to the decision on December 23, FinCEN updated their website, pushing back the reporting deadline.
(The deadline for most reporting companies created prior to January 1, 2024, was January 1, 2025. This deadline was then extended by FinCEN to January 13, 2025.)
On December 26, a different panel from the Fifth Circuit rescinded the initial stay, allowing the injunction to once again take effect.
In a statement, FinCEN updated their website to clarify that reporting companies are not required to submit BOI information to FinCEN and will not be penalized for failing to do so while the injunction is in effect. Reporting companies, however, may continue to voluntarily submit BOI reports.
*(Emphasis added.)
Just before the December 26 ruling, NFIB and the other plaintiffs requested a rehearing en banc. As a result, the court expedited the proceedings and required the government to submit a response by December 31, 2024. Following the vacating of the stay, that petition was withdrawn since the matter was rendered moot.
(En banc is a French term meaning "on the bench." It refers to a situation where all judges of a specific court hear a case, an occurrence that takes place in complex or significant cases.)
As part of the ruling, the court announced that the appeal process would be expedited to the next available oral argument panel. Oral arguments have now been scheduled for March 25, 2025.
Furthermore, Courts in Action
The Top Shop case is not the only case running through the courts.
Around the start of this year, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, declared the CTA unconstitutional, stating that it exceeds the boundaries of Congress's power. This decision stemmed from a legal dispute filed by the National Small Business United (also recognized as the National Small Business Association, or NSBA) and Isaac Winkles. This ruling prevents the U.S. Treasury from enforcing the CTA against the Plaintiffs—NSBA members—but does not prohibit enforcement against others. The federal government has since raised an objection to this decision, with the case hearing oral arguments in October 2024.
Besides National Small Business United v. Yellen, two other courts—the United States Court of Appeals for the Fourth Circuit and the United States Court of Appeals for the Ninth Circuit—are also dealing with CTA-related appeals.
Current Situation
The government is urging the Supreme Court to suspend the district court's injunction entirely while the case is being appealed, which would imply that BOI reporting would be obligatory just as it was before the initial injunction was issued.
In a different approach, the government described the original injunction as excessively broad and proposed that its implementation should be suspended, except for cases where it protects the respondents and the NSBA members mentioned in the complaint.
The government further suggested that the Supreme Court might wish to treat the application as a request for a writ of certiorari before judgment, to consider whether the district court had the authority to issue a complete injunction.
In order for a party to present an appeal related to a lower court decision—like this one—they need to file a writ of certiorari. Certiorari is a legal term derived from Latin, which means "to be more informed."
If the Supreme Court decides to deal with this matter, it's referred to as a grant of certiorari—at least four justices need to support hearing the case for it to be granted cert. Generally, certiorari is granted in significant cases or those involving a split in circuits. Here, the government indicates that certiorari could be applicable since the lower court declared an act of Congress as unconstitutional.
The issue the government is highlighting stemming from the original injunction is its application nationwide. Whether the district court has the power to issue such a broad relief, the government contends, is not established, arguing that, "the question of whether district courts may award universal relief has eluded this Court's review."
The U.S. Supreme Court is not obliged to take up this matter or address the government’s application. However, if the justices vote to grant certiorari, this case could surpass the scope of the CTA and have profound consequences for future challenges to federal laws.
- The Department of Justice (DOJ) argued in their application to the U.S. Supreme Court (Scotus) that historically, the court has upheld a strong presumption that Congressional Acts, such as the Corporate Transparency Act (CTA), should continue to operate until a final judgment is made.
- In their application to extend the ban on BOI reporting, the government referenced the U.S. Supreme Court's (Scotus) historical stance, citing that the CTA should continue operating until a final judgment is made.
- The Department of Justice (DOJ) mentioned the U.S. Supreme Court (Scotus) in their plea to the Fifth Circuit, where they argued that the court should limit the preliminary injunction to affect only a handful of companies that identified themselves before the district court.
- The DOJ urged the U.S. Supreme Court to suspend the district court's injunction while the case is being appealed, citing potential consequences for future challenges to federal laws.