On December 26, 2024, an order was issued vacating a previous stay that had been granted regarding the enforcement of the Corporate Transparency Act (CTA) and its corresponding Reporting Rule.[^1] The stay had been granted by a motions panel of the Fifth Circuit Court of Appeals on December 23, 2024, but was vacated by the merits panel of the same court. The order vacating the stay was made to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments”.[^2]

Here’s a breakdown of the situation:

Background

• The district court had issued a preliminary injunction on December 3, 2024, enjoining the enforcement of the CTA and its Reporting Rule, finding them likely unconstitutional.
• The government appealed this decision, and a motions panel of the Fifth Circuit granted the government’s emergency motion for a stay of the preliminary injunction on December 23, 2024. This stay effectively reinstated the January 1, 2025, reporting deadline for businesses.
• The merits panel of the Fifth Circuit was then assigned the appeal, which was expedited.

Reasons for Vacating the Stay

The December 26 order from the merits panel vacated the stay to preserve the “constitutional status quo” while the court deliberates on the merits of the case.[^3] This decision indicates a concern that allowing the stay to remain in place would have consequences that might be difficult to reverse if the court ultimately found the CTA to be unconstitutional. This approach is consistent with the purpose of a preliminary injunction, which is to “maintain the status quo pending litigation”.

The court’s decision to vacate the stay also suggests that it considered the following:

• Constitutional Concerns: The district court had deemed the CTA likely unconstitutional, and the merits panel acknowledged that the case involves “weighty substantive arguments” related to the constitutionality of the CTA and Reporting Rule. By vacating the stay, the court essentially acknowledges that the businesses and other parties challenging the law could be subject to unconstitutional burdens if the reporting requirement were to go into effect.
• Preservation of Rights: The court’s decision to vacate the stay can also be seen as a move to protect the rights of the plaintiffs, as compliance with the CTA would force them to disclose private information that they contend is protected by the First and Fourth Amendments.
• Balancing Equities: The court weighed the potential harm to the government if the stay was vacated against the harm that plaintiffs would face if the stay remained in effect. The panel noted that the harm of compliance for businesses was minimal, with FinCEN estimating it would take a typical company 90 minutes to file a report. However, the court’s decision to vacate the stay indicates it was also concerned about the possibility of forcing businesses to comply with a law that might ultimately be found unconstitutional, which would constitute an irreparable injury.
• Procedural Concerns: The district court issued a nationwide injunction against the CTA, despite the fact that other courts had tailored relief to the parties before them or denied relief altogether. The merits panel may be considering whether the district court’s issuance of a nationwide injunction was appropriate.
• No prejudice to the government: The court may have taken into consideration that the government’s stated need to enforce the CTA had been undermined by the fact that the CTA was enacted in 2021, yet the compliance deadline was set by FinCEN, not Congress, and that FinCEN had chosen to delay the compliance deadline for over three years.

Additional Points to Consider

• The December 23 order from the motions panel had granted the government’s emergency motion for a stay pending appeal, indicating that the panel found the government had met the requirements for a stay under Nken v. Holder. The criteria for this included showing a strong likelihood of success on the merits, irreparable harm absent a stay, minimal harm to other parties if the stay was granted and that public interest favored the stay.[^4]
• Judge Haynes dissented in part from the December 23 order, arguing that the stay should not apply to the plaintiffs or members of the National Federation of Independent Business (NFIB). She agreed that a national injunction was not appropriate.[^5]
• The plaintiffs filed an emergency petition for rehearing en banc, arguing that the panel decision to grant a stay conflicted with Supreme Court precedent, improperly weighed the equities in favor of the government and ignored harms to the plaintiffs.[^6]
• The plaintiffs also argued that forcing compliance with the CTA could moot their First and Fourth Amendment claims by compelling the disclosures that form the basis of these claims.[^7]
• The plaintiffs further asserted that the panel decision would harm millions of entities subject to the CTA by reinstating the compliance deadline with only days to comply.[^8]

In conclusion, the December 26 order vacating the stay was not a decision on the merits of the case, but a step taken to ensure the court had time to consider the complex arguments involved without creating a situation that might be difficult to reverse. It aimed to preserve the “constitutional status quo” by preventing the enforcement of the CTA while the court deliberates on the legal issues.

Where Things Stand Now

The beneficial ownership information reporting deadline is currently on hold, pending a decision by the merits panel, which is expected early in 2025. This decision will determine the merits of the original appeal by the Government against the District Court’s injunction.

If the panel decides to lift the stay (or at least its national applicability), the January 13, 2025 deadline would likely apply, unless FinCEN issues another relief ruling to push it back. It is also possible that the Department of Justice may seek emergency relief from the U.S. Supreme Court in the interim to restore the original injunction that removed the bar on enforcement and reinstated the upcoming deadlines.

FinCEN continues to allow affected entities to voluntarily file their reports, even though deadlines and enforcement are currently on hold. Entities that prefer not to track the rapid changes in this case may consider filing the report to avoid having to devote significant time to following the court proceedings.

Written with the assistance of NotebookLM in analyzing the most recent order.

[^1]: Order Vacating Portion of Stay Order Issued on December 23, 2024, Texas Top Cop Shop, Inc. v. Garland, Case No. 24-40792, December 26, 2024, https://www.ca5.uscourts.gov/opinions/unpub/24/24-40792..pdf

[^2]: Order Vacating Portion of Stay Order Issued on December 23, 2024, Texas Top Cop Shop, Inc. v. Garland, Case No. 24-40792, December 26, 2024

[^3]: Order Vacating Portion of Stay Order Issued on December 23, 2024, Texas Top Cop Shop, Inc. v. Garland, Case No. 24-40792, December 26, 2024

[^4]: Order, Texas Top Cop Shop, Inc. v. Garland, CA5 Case No. 24-40792, Document 140-2, December 23, 2024, https://storage.courtlistener.com/recap/gov.uscourts.ca5.222187/gov.uscourts.ca5.222187.140.2.pdf

[^5]: Order, Texas Top Cop Shop, Inc. v. Garland, CA5 Case No. 24-40792, Document 140-2, December 23, 2024

[^6]: Plaintiffs-Appellees’ Emergency Petition for Rehearing En Banc - Texas Top Cop Shop, Inc., CA5, December 24, 2024, https://www.currentfederaltaxdevelopments.com/s/govuscourtsca52221871430.pdf

[^7]: Plaintiffs-Appellees’ Emergency Petition for Rehearing En Banc - Texas Top Cop Shop, Inc., CA5, December 24, 2024

[^8]: Plaintiffs-Appellees’ Emergency Petition for Rehearing En Banc - Texas Top Cop Shop, Inc., CA5, December 24, 2024