Santa Claus is not the only one working on Christmas Eve!  Last night, the United States Court of Appeals for the Fifth Circuit issued an order in Texas Top Cop Shop, LLC v. Garland staying the lower court’s injunction and reinstating the beneficial ownership reporting deadline under the Corporate Transparency.  [Read Order here.]

Photo by KATRIN BOLOVTSOVA

Background

Congress passed the Corporate Transparency Act (CTA) in order to combat money laundering, tax fraud, and financial terrorism.  The CTA requires business entities created by filing documents with the Secretary of State to report information about their beneficial owners to the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN).  This applies to entities including LLCs, limited partnerships, and corporations.  So, for example, if you set up a single member LLC for your agricultural operation, you would need to complete the beneficial ownership reporting with FinCEN.  You can read more about the reporting requirements, exactly what information must be submitted, and how to do so by clicking here.  If you’d like to hear my discussion with Amber Miller and Ashley Pirtle, both lawyers advising clients on these reports, you can listen to our Ag Law in the Field Podcast episode here.

The deadline to make these reports was initially set as January 1, 2025 for all entities created prior to 2024.  For entities created during 2024, the deadline was 90 days after the entity was created.

Injunction Issued

On December 3, 2024, a district judge in Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, LLC v. Garland finding that the plaintiffs were likely to succeed on the merits of their challenge to the constitutionality of the CTA. [Read Order here.] This injunction put the January 1, 2025 reporting deadline on hold across the country and halted the enforcement of the CTA.  FinCEN announced it would not be enforcing the January 1, 2025 deadline pursuant to the injunction.  The United States filed an appeal with the United States Court of Appeals for the Fifth Circuit.

Injunction Stayed

On December 23, 2024, the United States Court of Appeals for the Fifth Circuit considered the United States’ emergency motion for a stay of the injunction pending appeal. The court granted the government’s motion.  [Read Order here.]

The court pointed out that several other courts considered similar challenges to the CTA.  Two federal district courts (Oregon and the Eastern District of Virginia) held the CTA is likely constitutional and denied the motions for injunction.  One federal district court (Northern District of Alabama) held the CTA is likely unconstitutional, but rejected the request for a nationwide injunction, instead issuing an injunction limited to the plaintiffs in the case.

The court addressed the four factors required when deciding a motion to stay pending appeal:

(1)  Whether the applicant made a strong showing he is likely to succeed on the merits.  The court found the United States made a “strong showing” that it is likely to succeed on the merits defending the CTA’s constitutionality.  The court noted the CTA was passed under Congress’ commerce power, which is extremely broad, the government met the rational basis test to conclude the regulated activity substantially affects interstate commerce.

(2) Whether the applicant will be irreparably injured absent a stay.  The court held that anytime the government is enjoined by a court from enacting statutes that were proposed and passed by the people’s representatives, there is necessarily irreparable harm.

(3)  Whether issuance of a stay will substantially injure the other parties interested in the proceeding; and (4)  Where the public interest lies.  The court considered these two factors jointly.  The  harm that the stay would cause businesses, the court held, would be minimal. FinCEN estimates a company would spend 90 minutes on average to file the beneficial ownership report. The court also rejected the plaintiffs’ argument that lifting the stay mere days before the January 1 compliance deadline would place an undue burden on them.  The court noted that the suit was filed in May 2024 and the preliminary injunction has only been in place for less than three weeks, far less than the four years since the CTA was passed and the year since FinCEN announced the reporting deadline.  When balancing this against the public’s “urgent interest” in combatting financial crimes and protection national security, the court found that equity favored a stay of the injunction.

Thus, the court granted the government’s emergency motion for a stay pending appeal, effectively pausing the injunction.

FinCEN Announcement

Shortly after the Fifth Circuit issued its decision, FinCEN issued an update to the reporting deadlines.  Pursuant to the court’s decision, FinCEN noted that the beneficial ownership reporting deadline was back in effect.  However, given the additional time that may be needed given the period when the injunction was in effect, FinCEN announced it would extend the reporting deadlines.

For all companies created prior to January 1, 2024 reports must be completed by January 13, 2025. There are additional deadlines for entities created during 2024, which may be found on the FinCEN website.

Key Takeaways

While this has been quite the saga to keep up with over the past few weeks, the key takeaway is that all reporting entities created prior to January 1, 2024 must file their beneficial ownership reports by January 13, 2025.  If you are unsure whether you are required to file a report for your entity, consult your attorney or CPA for advice.

And now, barring any other breaking news, we are signing off and wishing you all a very happy holiday!