Business and International Tax Blog

The legal battle over the Corporate Transparency Act (CTA) continues, now before the U.S. Supreme Court. On December 31, 2024, the U.S. Department of Justice (DOJ) filed an emergency application to stay the nationwide injunction issued by the Eastern District of Texas. This injunction currently halts enforcement of the CTA and its beneficial ownership information (BOI) reporting requirements, leaving businesses in a state of uncertainty.

The Legal Battle So Far

The CTA has been subject to a series of back-and-forth rulings:

• December 3, 2024: The Eastern District of Texas issued a nationwide injunction against the CTA, halting its enforcement.
• December 23, 2024: A Fifth Circuit panel stayed the injunction, temporarily reinstating the CTA’s reporting requirements.
• December 26, 2024: A different Fifth Circuit panel vacated the stay, reinstating the injunction and pausing compliance obligations once again.

Now, the Supreme Court will determine whether the injunction should remain in place during the ongoing appeal.

Justice Samuel Alito’s Role and the Supreme Court’s Next Steps

As the Circuit Justice for the Fifth Circuit, Justice Alito is responsible for handling the DOJ’s emergency application. Justice Alito may decide the application himself or refer it to the full Supreme Court for consideration. Regardless of how the application is handled, the potential outcomes are the same:

1. Deny the Stay: If the Supreme Court denies the Financial Crimes Enforcement Network (FinCEN) and the DOJ’s request, the nationwide injunction would remain in effect, and CTA reporting deadlines would continue to be stayed. Oral arguments for the case are scheduled for March 25, 2025.
2. Grant the Stay (Whole or Partial):
1. If the Supreme Court lifts the injunction entirely, the CTA’s reporting requirements could immediately apply nationwide, although when the injunction was initially lifted, FinCEN provided a grace period of about 3 weeks for companies to comply.
2. Alternatively, the Supreme Court could narrow the scope of the injunction, applying it only to the parties in the case. This narrower ruling would require all covered entities not part of the litigation to comply with CTA filing requirements.
3. Take the Case: In addition to seeking a stay, the DOJ has also asked the Supreme Court to consider its emergency application as a writ of certiorari to decide the broader question of whether federal district courts have the authority to issue nationwide injunctions, a contentious issue that has significant implications beyond this case.

Implications for Businesses and Entities

No Immediate Filing Obligation: Companies are not currently required to file BOI reports with FinCEN and will not face penalties for non-compliance while the injunction remains in effect.

Prepare for Potential Compliance: A Supreme Court ruling in favor of the DOJ could reinstate reporting requirements, possibly with little notice. Businesses should be ready to comply if necessary.

Stay Informed: The outcome of the Supreme Court’s decision could impact not only the CTA but also the broader use of nationwide injunctions in federal litigation.

Conclusion

The Supreme Court’s upcoming decisions will be pivotal for the future of the CTA and its enforcement. Whether the injunction is upheld, modified, or lifted, businesses must remain prepared for changes to their compliance obligations.