The on-again, off-again saga of the Beneficial Ownership Information Reporting Requirements (the “BOI Reporting Rule”) under the federal Corporate Transparency Act (the “CTA”) continues. On Thursday, January 23, 2025, in the case of Texas Top Cop Shop, Inc. et al vs. McHenry et al. (formerly Texas Top Cop Shop, Inc. et al vs. Garland et al), the United States Supreme Court issued a one paragraph ruling staying (i.e., “lifting”) an injunction against enforcement of the BOI Reporting Rule issued in that case by the U.S. District Court for the Eastern District of Texas.
Nevertheless, on January 7, 2025, in a separate case, Smith vs. U.S. Department of the Treasury, a different federal judge of the U.S. District Court for the Eastern District of Texas issued a separate nationwide preliminary injunction against enforcement of the CTA and the BOI Reporting Rule.
Today, FinCEN issued a notice acknowledging that, despite the Supreme Court’s action in the Texas Top Cop Shop case, the injunction against enforcement of the CTA and the BOI Reporting Rule issued in the Smith case remains in place, and reporting companies are not currently required to file BOI reports or subject to penalties for failure to file (see Alert: Ongoing Litigation – Texas Top Cop Shop, Inc., et al. v. McHenry, et al., No. 4:24-cv-00478 (E.D. Tex.) & Voluntary Submissions [Updated January 24, 2025], at https://www.fincen.gov/boi).
Supreme Court’s Action Lifts One Injunction But Leaves Another In Place.
The Supreme Court’s ruling relates to the Texas Top Cop Shop case, a lawsuit challenging the constitutionality of the BOI Reporting Rule and the CTA that was brought in the U.S. District Court of the Eastern District of Texas. That court issued a nationwide preliminary injunction against enforcement of the BOI Reporting Rule and the CTA pending resolution of the case (including the questions about the BOI Reporting Rule’s and the CTA’s constitutionality) on the merits. The federal government filed an appeal of the injunction with the Fifth U.S. Circuit Court of Appeals.
On December 23, 2024, a panel of judges of the Fifth Circuit “stayed” (i.e., lifted) the injunction against enforcement of the BOI Reporting Rule and the CTA. Just three days later, on December 26, 2024, a different panel of judges of the Fifth Circuit issued an order vacating the stay of the injunction.
In its January 23, 2025 ruling, the Supreme Court again stayed (lifted) the injunction against enforcement of the BOI Reporting Rule and the CTA. Nevertheless, it appears that the Supreme Court’s ruling affects only the injunction in the Texas Top Cop Shop case, and does not affect the separate injunction in the Smith case.
What May Happen Next.
Litigation over the constitutionality of the CTA and the BOI Reporting Rule continues in the Eastern District of Texas, where the nationwide injunctions were issued in the Smith and Texas Top Cop Shop cases, the Fifth Circuit, and other federal courts around the country. It is possible that the Justice Department will appeal the Smith injunction to the Supreme Court, though to date it does not appear to have done so. It also remains possible that the Fifth Circuit will rule, on the merits, that the CTA and the BOI Reporting Rule are unconstitutional or otherwise not enforceable, or that the Fifth Circuit will uphold the CTA and the Rule. If the Fifth Circuit rules them unconstitutional or unenforceable, it is not clear whether or not the Justice Department under the new Trump Administration will appeal such a ruling to the Supreme Court.
It is also not yet clear how much effort the new Administration will make to enforce the CTA and the BOI Reporting Rule if the Smith injunction is lifted or the CTA and the BOI Reporting Rule are held to be constitutional. Further, on January 21, 2025, a bill was introduced in the U.S. Senate to repeal the CTA (which would effectively terminate the BOI Reporting Rule). That bill’s chances of passage in Congress, and of being signed by President Trump, are unclear at this early stage.
What You Should Do Now.
In view of the rapid and conflicting developments relating to the CTA and the BOI Reporting Rule, reporting companies will need to be ready to submit their initial BOI reports if and when the Smith injunction is lifted. Accordingly, we continue to recommend that business entities take action as soon as possible to determine if they are “reporting companies” required to comply with the BOI Reporting Rule, to identify their “beneficial owners” and “company applicants” and gather all information needed for reporting.
BLM&H has previously written an extensive summary of the BOI Reporting Rule, including on topics such as what companies are “reporting companies”, how to identify a reporting company’s “beneficial owners” and “company applicants”, and what information must be included in a BOI Report (“Corporate Transparency Act Beneficial Owner Information Reporting Requirements Take Effect on January 1, 2024 – What Business Entities Need to Know and Do” found at https://blmhlaw.com/corporate-transparency-act-beneficial-owner-information-reporting-requirements-take-effect-on-january-1-2024-what-business-entities-need-to-know-and-do/). If you are unfamiliar with the BOI Reporting Rule, we encourage you to read our summary.
How BLM&H Can Help You.
BLM&H will continue to monitor developments with respect to the CTA and the BOI Reporting Rule and the various cases challenging their enforceability and constitutionality.
BLM&H can help you understand and comply with the BOI Reporting Rule. If you have questions about the BOI Reporting Rule or the temporary injunction against its enforcement, or if you need help preparing for your company’s initial, updated or corrected filings should the injunction be lifted, please contact:
Kevin J. Loechl, kloechl@blmhlaw.com, 404.266.3205
Hunter Holliday, hholliday@blmhlaw.com, 404.266.3206
Quincy H. Jackson, qjackson@blmhlaw.com, 404.266.3212
Colton E. Francoeur, cfrancoeur@blmhlaw.com, 404.266.3217