Corporate Transparency Act: Government Appeals Smith Case, Seeks Reporting Rule Reinstatement

Here are the latest developments in the ongoing Corporate Transparency Act (CTA) saga.

Jan 23, 2025. The U.S. Supreme Court (as noted in a previous Holland & Knight alert) stayed (lifted) the preliminary injunction against the CTA that had been issued in the Texas Top Cop Shop case and specified the circumstances when the stay would be lifted.

• However, the decision of the Supreme Court, the highest federal court in the land, to stay the preliminary injunction in the Texas Top Cop Shop case would not control whether the CTA's so-called "Reporting Rule" – the reporting of beneficial ownership information (BOI) – was reinstated.
• Why: In another case challenging the constitutionality of the CTA, Smith v. United States Department of the Treasury, the U.S. District Court for the Eastern District of Texas issued an order on Jan. 7, 2025, that 1) enjoined enforcement of the CTA, limited to the parties to that case and 2) suspended application of the CTA's Reporting Rule nationwide. Even though the Smith order was issued by a federal district court, the lowest in the hierarchy of federal courts, that order from the Smith case was not before the Supreme Court when it considered the Texas Top Cop Shop case and, therefore, remained in effect.

Jan 24, 2025. The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) announced that in light of the Smith case court order, reporting companies would not be required to file BOI reports, notwithstanding the stay (lifting) of the injunction in Texas Top Cop Shop issued by the Supreme Court.

Feb. 5, 2025. The government, by the newly appointed Trump Administration Acting U.S. Attorney for the Eastern District of Texas, appealed the preliminary relief ordered by the U.S. District Court for the Eastern District of Texas in the Smith case and concurrently filed a motion to stay the preliminary relief that the court granted, pending appeal, to include the nationwide enjoinment of the Reporting Rule ordered by the court. The disposition of that appeal and motion to stay is pending, as the plaintiffs' response to the government brief was due on Feb. 14, 2025.

Feb. 6, 2025. FinCEN updated its website by its Alert: Ongoing Litigation – Smith, et al. v. U.S. Department of the Treasury, et al., 6-24-cv-00336 (E.D. Tex.) & Voluntary Submissions.

Feb. 7, 2025. The government filed a brief with the U.S. Court of Appeals for the Fifth Circuit in the Texas Top Cop Shop case, which is on appeal (by the government) from the Eastern District of Texas, defending the CTA. In this case, the district court had granted the plaintiffs' motion for a preliminary injunction.

Feb. 7, 2025. The government filed a brief with the U.S. Court of Appeals for the Fourth Circuit in the Community Associations Institute case, which is on appeal (by the plaintiff) from the U.S. District Court for the Eastern District of Virginia defending the CTA. In this case, the district court had denied the plaintiffs' motion for a preliminary injunction.

Feb. 10, 2025. The Protect Small Business from Excessive Paperwork Act of 2025, H.R. 736 (a.k.a. the Nunn Bill) was unanimously passed by the House. The Nunn Bill would delay the deadline for filing of initial BOI reports, but only for reporting companies formed prior to Jan. 1, 2024, until not later than Jan. 1, 2026.

Feb. 12, 2025. The Protect Small Business Excessive Paperwork Act of 2025 was introduced in the Senate by Sen. Tim Scott (R-S.C.). The bill had 10-cosponsors and was referred to the Senate Banking, Housing, and Urban Affairs Committee.

Feb. 14, 2025. The U.S. district court in Boyle v. Scott Bessent granted the government's motion for summary judgment.

What Position the Government Has Taken in Respect of the CTA

Prior to the second Trump Administration coming in to power on Jan. 20, 2025, one of the announced policy objectives was to reduce regulatory burdens on business. Also, Project 2025 called for the repeal of the CTA, though the Trump team before the election disavowed the Project 2025 report. So, it was not clear regarding how the incoming administration felt about the CTA.

As of now, the Trump Administration has signaled an intent to defend the constitutionality of the CTA, as evidenced by the briefs filed by the government with the Fourth Circuit in the Community Association Institute case and in the Fifth Circuit in the Texas Top Cop Shop case.

Further, the government has expressed an intent to review various aspects of the CTA.

• First, in its Motion for Stay Pending Appeal, dated Feb. 5, 2025, the government wrote:

If the stay is granted, the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) intends to extend the Corporate Transparency Act (CTA) compliance deadline for 30 days. During that period, FinCEN will assess whether it is appropriate to modify the CTA's reporting requirements to alleviate the burden on low-risk entities while prioritizing enforcement to address the most significant risks to U.S. national security. Staying the grant of preliminary relief will help facilitate that process.

• Second, when FinCEN updated its website on Feb. 6, 2025, to reflect the Smith litigation activity and the current status of reporting obligations, the second sentence of the statement below echoed and slightly expanded the government's statement above by adding a reference to a review of not only reporting requirements, but also of filing deadlines:

If the district court's order is stayed, thereby allowing FinCEN's Reporting Rule to come back into effect, FinCEN intends to extend the reporting deadline for all reporting companies 30 days from the date the stay is granted. Further, in keeping with the Treasury Department's commitment to reducing regulatory burden on businesses, FinCEN, during that 30-day period, will assess its options to modify further deadlines or reporting requirements for lower-risk entities, including many U.S. small businesses, while prioritizing reporting for those entities that pose the most significant national security risks. (emphasis added)

Where Things Stand Now with the CTA Reporting Rule

• The government is actively defending the CTA in multiple cases.
• The government has appealed the Smith case to the U.S. Court of Appeals for the Fifth Circuit, the same circuit court that now is considering the appeal in the Texas Top Shop Cop
• The government in the Smith case also has filed a motion, pending appeal, requesting that the district court stay (lift) its preliminary injunction relating to the enforcement of the CTA as to the lawsuit parties and reinstate the Reporting Rule for everyone else.
• FinCEN, with respect to the disposition of the motion in the Smith case, has announced:
  • Though the injunction issued in the Smith case remains in effect, reporting companies would not be required to file BOI reports.
  • If the Reporting Rule were to be reinstated, it intends to extend the reporting deadline by 30 days, presumably from the date of reinstatement.¹
  • It would assess its options to modify further deadlines or reporting requirements for lower-risk entities.
  • It would prioritize reporting for entities that pose the most significant national security risk.
  • Reporting companies may continue to voluntarily submit reports free of charge.

Holland & Knight Comment

Emphasizing the administration's well-known commitment to reduce regulatory burdens for businesses, FinCEN's announcement that it will undertake a review of the CTA during the 30-day period if a stay were to be granted is notable. In that regard, however, why would FinCEN wait to undertake a review of the CTA until a decision is made on the stay?

Though relief would be welcome, FinCEN should prioritize its review and implementation of any relief prior to reinstating any deadline for BOI reporting. Otherwise, how would FinCEN's assessment reduce the regulatory burden if the 30-day reassessment were to be contemporaneous with the 30-day reporting period?

Other Pending Litigation

The Smith case is only one of a number of challenges to the CTA pending in courts around the country. In this section, we highlight cases that have been appealed to federal circuit courts (and their briefing status), as well as other developments.

National Small Business United v. Yellen (NSBU). The U.S. District Court for the Northern District of Alabama found the CTA unconstitutional and enjoined the government from enforcing the CTA against the plaintiffs. The government appealed this case to the U.S. Court of Appeals for the Eleventh Circuit, and oral arguments were held on Sept. 27, 2024. To date, the Eleventh Circuit has not issued a decision.

Texas Top Cop Shop. As noted above, the Eastern District of Texas injunction against the CTA has been appealed to the U.S. Court of Appeals for the Fifth Circuit. The Fifth Circuit has established an expedited briefing schedule as follows.

• Feb. 7, 2025 – appellants' (government) brief filed arguing that the preliminary injunction should be vacated
• Feb. 21, 2025 – appellees' (plaintiffs) brief due
• Feb. 28, 2025 – appellants' reply brief
• April 1, 2025 – oral argument (rescheduled from March 25, 2025)

In view of the two CTA challenges now pending before the Fifth Circuit (Smith and Top Cop Shop), the court may decide to consolidate the two cases and issue one ruling.

In terms of the impact the Texas Top Cop Shop case on the Reporting Requirement, the plaintiffs have a challenging task in view of the way the Supreme Court phrased its order as to when the stay terminates.² Much will depend on which party wins at the Fifth Circuit level, whether the losing party petitions for, and whether the Supreme Court grants, certiorari and which party prevails at the Supreme Court level.³

Community Associations Institute et al v. U.S. Department of the Treasury et al. The U.S. District Court for the Eastern District of Virginia denied the plaintiffs' request for a preliminary injunction against the CTA's enforcement. The plaintiffs appealed the decision to the U.S. Court of Appeals for the Fourth Circuit, and briefing is underway.

Firestone et al v. Yellen et al. The U.S. District Court for the District of Oregon denied the plaintiffs' request for a preliminary injunction against enforcement of the CTA. The plaintiffs appealed the decision to the U.S. Court of Appeals for the Ninth Circuit, and opening and answering briefs have been filed. (Both briefs were filed prior to Jan. 20, 2025.)

Boyle v. Bessent, et al. Just as this alert was being finalized, the U.S. District Court for the District of Maine granted the government's motion for summary judgment that "the CTA is a valid exercise of Congressional power" and issued a lengthy, well-reasoned opinion worth reading because of its in-depth analysis of various aspects of the CTA.

Other CTA court challenges in process are identified in this appendix.

Proposed Legislation

In Congress, Sens. Tommy Tuberville (R-Ala.) and Jim Risch (R-Idaho) on Jan. 24, 2025, introduced the Repealing Big Brother Overreach Act, which would repeal the CTA entirely. On Jan. 25, 2025, Rep. Warren Davidson (R-Ohio) re-introduced the Repealing Big Brother Overreach Act in the House. He was joined by 68 House colleagues and had support from Sen. Tuberville.

On the House side, Rep. Zach Nunn (R-Iowa) on Jan. 25, 2025, reintroduced the Nunn Bill (H.R. 736), which would delay the deadline for filing of initial BOI reports, but only for reporting companies formed prior to Jan. 1, 2024, until not later than Jan. 1, 2026. The House acted quickly on the Nunn Bill and unanimously passed the legislation on Feb. 10, 2025. On Feb. 12, 2025, a companion bill (S. 505) was introduced on the Senate side by Sen. Tim Scott (R-S.C.). The bill had 10 co-sponsors and was referred to the Senate Banking, Housing, and Urban Affairs Committee.

Conclusion

Overall. There has been a whirlwind of activity regarding the CTA area in the past few months, and recent events summarized herein foretell that this frenetic pace of activity will continue.

Smith Case. If the government is successful in having the nationwide suspension of the Reporting Rule stayed (lifted), then the focus immediately would shift to FinCEN and how it would revise the reporting rules and deadlines, particularly for lower-risk entities.

NSBU and Texas Top Cop Shop Cases. These circuit court decisions will become important over a somewhat longer time frame, particularly in view of their likely appeal to the Supreme Court.

Other Events. Finally, one cannot discount what will happen in Congress or, for that matter, in the executive branch. In that regard, one should now closely follow what the Senate does with the Nunn Bill.

Actions to Take Now:

• Pay close attention to developments.
• In the interim, reporting companies need to prepare to file if they have an obligation to file but have not filed because of the suspension in filings. This group includes:
  • entities formed in 2025 that have 30 days to file from their formation or registration
  • entities formed/registered in 2024 that have not yet filed an initial BOI report
  • entities formed/registered prior to 2024, where we will see what the reporting deadline is
  • entities that previously have filed an initial, updated or corrected report and now need to further update or correct their previously filed BOI reports.

The foregoing types of entities should gather the requisite information now and be prepared to file within the prescribed period if the Reporting Rule is reinstated.

• Voluntary BOI filings are permissible notwithstanding the pending litigation.

For more information or questions, please contact the authors.

Notes

¹ There is uncertainty regarding how the Executive Order "Regulatory Freeze Pending Review," issued on Jan. 20, 2025, might affect FinCEN's ability to promulgate future guidance or regulations.

² The Supreme Court order provided the following: The stay (i.e., the lifting of the prohibition on reporting) means that beneficial ownership information (BOI) reporting continues 1) during the time that the U.S. Court of Appeals for the Fifth Circuit adjudicates the case and 2) the losing party appeals the case to the Supreme Court by filing a timely appeal, i.e., a writ of certiorari. The injunction (or suspension) on reporting is reinstated in two circumstances: if 1) the Supreme Court denies the writ of certiorari or 2) the Supreme Court accepts the case until the time it renders a decision in the case.

³ The Nunn Bill was voted out of the House on a vote of 407-0 under a "suspension of rules."

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.