COLUMBUS, Ohio — Originally, I reported on Jan. 23 that beneficial ownership information (“BOI”) reporting requirements under the Corporate Transparency Act (“CTA”) were back in effect after the SCOTUS decision in the Texas Top Cop Shop case. However, that was not the full story.
A recap of the Texas Top Cop Shop case.
In the Texas Top Cop Shop case, a US District Court for the Eastern District of Texas issued a nationwide injunction against the enforcement of the CTA and its beneficial ownership BOI reporting requirements. However, the Government appealed that decision, and a motions panel of the Fifth Circuit Court stayed the injunction, essentially reinstating the reporting requirements of the CTA. Then, three days later, a merits panel of the Fifth Circuit reversed course and vacated the stay, effectively reinstating the nationwide injunction. The Government then applied to the Supreme Court of the United States (“SCOTUS”) for a stay of the nationwide injunction. SCOTUS did grant the Government’s application for a stay and has lifted the nationwide injunction against the CTA. However, the story does not end there.
The CTA saga continues.
Earlier this month, the saga that is the CTA took another turn when a US District Court for the Eastern District of Texas issued a nationwide stay on the CTA’s Reporting Requirements in a case separate from Texas Top Cop Shop. In Smith v. U.S. Department of Treasury, the court exercised its authority under 5 U.S.C. § 705 and stayed the effective date of the Reporting Rule of the CTA while the lawsuit remains pending. As a result, while there is no nationwide injunction preventing enforcement of the CTA, the Reporting Rule’s implementation is still temporarily on hold thanks to the stay in the Smith case.
What is the difference between a stay and an injunction?
Stays and injunctions are similar in that both can effectively prevent certain actions before their legality is fully resolved. However, they achieve this outcome in distinct ways. An injunction is directed at a specific party, with the court ordering them to either take or refrain from taking specific actions. While a stay can be considered a “type of injunction,” it operates differently. A stay does not directly target a party’s actions; instead, it temporarily suspends the authority that allows the action, without directly dictating anyone’s behavior.
While both an injunction and a stay effectively achieve the same goal, there are important distinctions between them. For instance, obtaining an injunction against a party is generally more challenging than securing a stay while a lawsuit is ongoing. This is because an injunction requires the court to actively direct a party’s actions, whereas a stay simply preserves the status quo until the case is resolved.
Where are we now?
The Government has yet to appeal the issuance of the stay in the Smith case, but the window for filing an appeal has not yet closed. It will be interesting to see how the Fifth Circuit and/or SCOTUS handles the nationwide stay as opposed to the nationwide injunction.
In summary, the latest chapter of the CTA saga confirms that businesses nationwide are not required to file BOI reports. However, businesses are still permitted to voluntarily submit their BOI reports to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Several lawsuits challenging the constitutionality of the CTA remain pending across the country, along with reintroduced legislation aiming to repeal the CTA entirely. It’s clear that the CTA story is far from over, and we will continue to keep you informed on the latest developments.
— Jeffrey K. Lewis, Esq., Program Coordinator, Income Tax Schools
Ohio State University CFAES
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