by Jason Rauhe, CPAJanuary 24, 2025

Supreme Court Temporarily Allows Enforcement of the Corporate Transparency Act

The U.S. Supreme Court has temporarily lifted a nationwide ban on enforcing the Corporate Transparency Act (CTA), a law that requires certain businesses to report information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  On January 23, Justice Samuel Alito issued a ruling staying a December 5, 2024 order from a federal district court in Texas that had blocked enforcement of the CTA. The stay will remain in place until the 5th U.S. Circuit Court of Appeals resolves the case. The ruling also outlines what will happen if the case is taken up by the Supreme Court. If the Court denies a review, the stay will automatically end. If the Court agrees to review the case, the stay will remain in effect until the Court issues a judgment.

Background

The case originated from a lawsuit filed by Texas Top Cop Shop, a police supply store, along with the National Federation of Independent Business (NFIB) and others. The plaintiffs argued that the CTA’s reporting requirements violate the Constitution. In December 2024, a Texas federal court sided with Texas Top Cop Shop and issued a preliminary injunction halting enforcement of the law nationwide. The government appealed to the 5th U.S. Circuit Court of Appeals, leading to a series of rapid developments in late December. Initially, a motions panel stayed the injunction, but a merits panel later reversed that decision. As a result, the CTA’s January 1, 2025, deadline for businesses to report beneficial ownership information became unenforceable.  In response, FinCEN informed businesses they could voluntarily submit ownership reports but would not face penalties for failing to comply while the injunction was in effect.

Supreme Court Filings

On December 31, the government petitioned the Supreme Court to stay the injunction. It is argued that the CTA is well within Congress’s authority under the Commerce Clause and is essential to combating financial crimes and protecting national security. The government described the compliance burden on businesses as minimal and emphasized the importance of allowing acts of Congress to remain enforceable during legal challenges. Additionally, the government criticized the Texas court’s universal injunction, calling it a broader issue that burdens the federal court system. It suggested the Supreme Court could treat the stay request as a petition to review whether the lower court erred in granting universal relief. However, the Supreme Court’s ruling this week did not address that question.  In their January 10 response, Texas Top Cop Shop and its co-plaintiffs argued that enforcing the CTA immediately would provide only marginal benefits while imposing substantial costs. They also suggested the government was rushing to secure enforcement before the new administration could potentially delay the compliance deadline. The plaintiffs warned of tens of billions in unrecoverable compliance costs if businesses were required to file reports before the lawsuit is resolved.

Reactions

Advocates of the CTA believe the law is essential for tackling financial crimes and improving transparency, which would enable law enforcement to investigate cases involving shell companies. Critics, however, argue that the reporting requirements place an undue burden on small businesses and could lead to widespread confusion and significant compliance costs.  NFIB continues to push for Congress to repeal the CTA, emphasizing the challenges it poses to millions of small businesses across the country.

If you have any questions or concerns about this ruling or any other international tax issue, please contact our Global Business Services team.

Jason Rauhe, CPA is a Shareholder in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.

Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.

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