Appeals court reinstates BOI injunction

A federal appeals court has reversed itself, reinstating an injunction on beneficial ownership information reporting by businesses only days after lifting it.

On Monday, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of a preliminary injunction by a federal district court in Texas that had temporarily paused a requirement for filing BOI reports with the Treasury Department's Financial Crimes Enforcement Network under the Corporate Transparency Act of 2019 in the case of Texas Top Cop Shop Inc. v. Garland.

The plaintiffs petitioned the full appeals court for an en banc rehearing to consider additional issues in the case. They argued that the panel's decision conflicted with a 2012 Supreme Court decision in the case of National Federation of Independent Businesses v. Sebelius, ignored potential violations of the First and Fourth Amendments, and improperly discounted serious harms that the plaintiffs and the public would suffer. They also argued that the decision to reinstate the Jan. 1 reporting deadline, which was only a few days away, disregarded the interests of millions of entities subject to the CTA, which aims to deter criminals from using shell companies for illicit purposes such as money laundering and terrorism financing.

The appeals court issued an order Thursday reinstating the injunction, and noted the original order had expedited the appeal to the next available oral argument panel, scheduled for March 25. 

"The merits panel now has the appeal, which remains expedited, and a briefing schedule will issue forthwith," said the court. "However, in order to preserve the constitutional status quo while the merits panel considers the parties' weighty substantive arguments, that part of the motions-panel order granting the government's motion to stay the district court's preliminary injunction enjoining enforcement of the CTA and the reporting rule is vacated."

Earlier this week, after the appeals court panel initially lifted the injunction, the Treasury Department announced an extension of time for businesses to file to meet the BOI reporting deadline. Reporting companies that were created or registered prior to Jan. 1, 2024, were given until Jan. 13, 2025, to file their initial beneficial ownership information reports with the FinCEN, as opposed to the Jan. 1, 2025, deadline. The American Institute of CPAs and state CPA societies have been asking FinCEN to delay the BOI reporting requirements. Now the appeals court appears to have delayed the reporting requirement indefinitely.

FinCEN reacted to the move by announcing Friday that companies are not currently required to file the reports but can still file them voluntarily: "In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports."

The reprieve will give businesses and their accountants more time to put together the BOI reports if they haven't filed them already.

"The Fifth Circuit's latest development and the scheduling of oral arguments for March 25, 2025, is mostly frustrating but also a welcome delay for a filing still needed by a number of entity owners and managers," said Bill Kambas, private client and tax partner at international law firm Withers, in an email. "Many are trying to read the political tea leaves of an incoming administration and a 'red sweep' through the U.S. federal government. Efforts at governmental efficiency and reducing regulatory burdens will inevitably put pressure on the ultimate future of the Corporate Transparency Act. Clients have been working for months to organize and digest the ownership and management of their operations, most challenging being those with tiered ownership and complex or sophisticated and dynamic management systems. In every case that I have been involved with, well-meaning and law-abiding owners and managers have done their best to evaluate their ownership and management structures in the context of the rules and regulations of the CTA. While not all filings have been submitted, considerable efforts were made to prepare the data and be ready to transfer it in a secure and protected manner."

Businesses and their accountants may be feeling a sense of whiplash after the conflicting moves by the courts.

"FinCEN responded to the Fifth Circuit Court of Appeals reinstatement of the CTA compliance stay by issuing a notice that compliance with the reporting requirements of the CTA is now only voluntary until the litigation is resolved," said Joseph Lynyak, a banking attorney at Dorsey & Whitney, in an emailed statement. "Unlike previous FinCEN notices, this notice is clear and provides relief to corporate entities struggling with their compliance obligations. While awaiting a decision in that case, FinCEN might want to devote resources to responding in a responsible manner to the dozens and dozens of requests for interpretative guidance filed by corporate entities. This could take the form of creating a 'commentary' to the FinCEN regulations or simply by answering complex compliance inquiries rather than pointing to the FinCEN regulations and daring reporting companies to 'figure it out yourselves.'"