On Dec. 5, 2024, two days after the Texas federal court issued its ruling, the DOJ filed a formal notice of appeal, challenging its injunction of the CTA.
Shruti Gurudanti, Rose Law Group partner & director of corporate transactions:
“I have recommended (and will continue to recommend) that clients continue taking steps to comply with the CTA reporting requirements because the Government has already appealed this decision (as of December 5th). Clients, especially the ones with more complex structures, would be best served by continuing to gather information necessary to comply with the CTA to avoid any last-minute scramble if the Fifth Circuit reverses the decision or otherwise stays the injunction before the January 1, 2025 filing deadline.’
‘Also, folks are nervous about the heavy penalties and jail time for non-compliance. Note that the Act says that these penalties will be imposed on entities that willfully fail to comply or omit required information from their reportings. So, if entities can show that they were making a good faith effort to comply and there was some confusion around enforcement due to these lawsuits then, I suspect that the government will take this into account. However, again, I would recommend that clients continue to file (albeit voluntarily) as I believe that the CTA will be enforced at some point in the future.”
FT. LAUDERDALE, Fla., Dec. 8, 2024 /PRNewswire-PRWeb/ — On December 5, 2024, just two days after the Texas federal court issued its December 3, 2024, ruling, the Department of Justice filed a formal notice of appeal to the Fifth Circuit. This notice of appeal indicates a swift challenge to the court’s preliminary injunction that temporarily halts nationwide enforcement of the Corporate Transparency Act (CTA). <Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al. (Case No. 4:24-cv-00478)>
The appeal notice also indicates that the Department of Justice promptly seeks a stay of the injunction. While the injunction remains in effect, FinCEN is unable to enforce the CTA or impose any penalties for non-compliance.
However, the Fifth Circuit could quickly revise the scope of the injunction prior to the regulation’s January 1st deadline while the appeal is under review. This could potentially limit the injunction’s application to named plaintiffs or a smaller group of businesses or stay the injunction entirely, allowing FinCEN to enforce the Corporate Transparency Act nationwide.
The Fifth Circuit will evaluate any upcoming DOJ motion based on factors such as:
Likelihood of Success on the Merits: Whether the government’s appeal has a strong chance of overturning the injunction.
Irreparable Harm: Whether allowing the injunction to remain would cause significant harm to the government or public interest.
Balance of Harms: Whether the harm to the government outweighs the harm to the plaintiffs.
Public Interest: Whether staying or maintaining the injunction aligns with the broader public interest or national security.
Many firms are choosing to continue collecting client information and preparing BOI reports in anticipation of a possible stay of the injunction, which could reinstate the original January 1, 2025, filing deadline. Stays pending appeal are often decided quickly, especially in high-profile cases involving federal enforcement. A decision could come within days or weeks. If this happens, firms that have not collected the necessary information from clients in advance may face delays or challenges in filing reports before a reinstated deadline.
Similar cases, including the Firestone v. Yellen decision in Oregon (September) and the CAI v. Yellen case in Virginia (October), saw courts deny injunctions, offering a precedent that suggests the Texas ruling may also face similar outcomes.
FincenFetch remains committed to providing ongoing updates and filing solutions for firms and businesses during this uncertain period. We are closely monitoring the Department of Justice’s appeal to keep firms and businesses updated. Businesses can rely on FincenFetch to stay prepared and informed as developments unfold.
