Federal Government Appeals Order Blocking Enforcement of the CTA’s Beneficial Ownership Information Rule and Seeks Stay Pending Appeal, but Fate of CTA Remains Unclear

As we have previously reported, enforcement of the Corporate Transparency Act’s (the CTA) Beneficial Ownership Information Reporting rule (the BOI Rule) remains blocked nationwide as the result of an order from the U.S. District Court for the Eastern District of Texas in Smith v. U.S. Dep’t of the Treasury. On January 7, 2025, the Smith court granted a motion for preliminary injunction enjoining enforcement of the CTA against the named plaintiffs and their related entities, while also issuing a nationwide stay of the effective date of the BOI Rule. This occurred before the Supreme Court stayed a separate nationwide injunction of the CTA and stay of the BOI Rule in Texas Top Cop Shop v. McHenry.

Latest Developments in Smith

On February 5, 2025, the Government filed a Notice of Appeal in Smith, stating its intent to appeal the District Court’s order to the U.S. Court of Appeals for the Fifth Circuit. The Government also filed a Motion for Stay Pending Appeal (the Government’s Motion), requesting that the Smith Court “stay the order granting preliminary relief in its entirety pending appeal, as the Supreme Court did in Texas Top Cop Shop” and “at minimum . . . stay its nationwide § 705 stay and allow the government to act freely with respect to all but the named plaintiffs.” 

If the stay is granted, the Government told the Court that the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) “intends to extend the … [CTA] compliance deadline for thirty days." Notably, the Government told the Court that, during this 30-day period, “FinCEN intends to assess its potential options to prioritize reporting for those entities that pose the most significant national security risks while providing relief to lower-risk entities and, if warranted, amending the Final Rule.”

Implications

In light of the Supreme Court’s ruling in Texas Top Cop Shop, it seems likely that the District Court in Smith will permit the BOI Rule to take effect during the pendency of the Government’s appeal. The District Court also might choose to stay its separate injunction against enforcement of the CTA against the named plaintiffs.

If the District Court grants a stay, Reporting Companies would have 30 days to comply with the CTA and the BOI Rule. That said, if FinCEN alters compliance deadlines or alters the BOI Rule through a rulemaking – as FinCEN suggests it may do – then the timelines for reporting, and who must report, may change. 

For now, Reporting Companies should closely monitor the Smith litigation and other cases challenging the CTA as well as related updates from FinCEN to determine if they continue to have reporting requirements under the BOI Rule, the timing for reporting to FinCEN, and the type of information that must be reported to FinCEN.