The Government Files Motion to Stay Pending Appeal

The Government Files Motion to Stay Pending Appeal

On December 11, 2024, the U.S. Department of Justice filed a Motion to Stay Pending Appeal (the “Motion”) in response to a decision by the U.S. District Court for the Northern District of Texas that issued a preliminary injunction halting enforcement of the Corporate Transparency Act (CTA). The injunction was granted in a case brought by a group of plaintiffs, including the National Small Business Association (NSBA) challenging the CTA as unconstitutional.  The Motion seeks to lift the injunction while the Government appeals the court’s decision.

Government Arguments

The Government argues that the injunction significantly disrupts FinCEN’s progress in implementing the CTA, asserting that FinCEN has invested substantial resources into a comprehensive public education campaign to ensure businesses understand the reporting requirements. These efforts include nationwide public service announcements, direct outreach at over 200 events, and a dedicated contact center to assist filers. The Motion asserts that since the campaign began, reporting rates have surged, with submissions doubling in the past two months compared to the previous eight. Nearly one-third of all reports were filed in the three weeks before the injunction, with filing rates reaching nearly 1 million per week. In total, approximately 10 million reports have been submitted, and the Government anticipates continued exponential growth leading up to the 2025 deadline.

The Motion asserts that  the injunction halts this momentum and causes  confusion among businesses and complicates future compliance efforts. If the injunction remains in place for an extended period, FinCEN may face substantial challenges in resuming its outreach efforts, reeducating the public, and enforcing compliance if the CTA is later reinstated. This disruption threatens to delay the achievement of the CTA’s objectives, undermining efforts to prevent financial crimes and safeguard the U.S. financial system.

Likelihood of Success on the Merits

The Motion asserts that the CTA is legally sound and falls within Congress’s authority under the Commerce Clause, contending that the district court erred in concluding otherwise and arguing that the CTA’s requirements are needed to deter tax evasion, protect commerce, and enhance the transparency of U.S. business entities. The Motion also reminds that that similar challenges to the CTA in other jurisdictions have failed.

The Balance of Harms and Public Interest

The Motion emphasizes that the balance of harms weighs heavily in favor of lifting the injunction, asserting that CTA compliance imposes minimal burdens on reporting companies. The burden contrasts with the alleged harm caused by delays in implementing the CTA, which would allow financial crimes to persist and hinder the Government’s ability to address them effectively.

Reducing The Scope of the Injunction

The Government finally argues to reduce the scope of the injunction to exclude non-parties. The Motion advises that nationwide injunctions are typically viewed with skepticism and should not extend relief to entities that are not part of the case.

The Timeline to a Decision

The Government requested a ruling on its Motion before the end of the year, showing its intent to  adhere to the original January 1, 2025 reporting deadline. Amicus Curiae Eagle Forum Education & Legal Defense Fund filed a motion in support of the Plaintiffs on December 16th, arguing against the contentions in the Government’s Motion. The District Court ordered the Plaintiffs to respond to the Motion by 5:00 P.M. December 17th. The Government must respond to the Plaintiffs’ reply by 12 P.M. on December 19th.

This expedited timeline evidences the court’s intent to rule on the Motion prior to the end of this year.  If the district court grants the Motion, it would effectively reinstate the CTA and its January 1, 2025 reporting deadline, until the case is decided on appeal. In the alternative, the court could reduce the scope of the injunction and find that it only applies to the named plaintiffs, including all members of the NSBA.

In light of the continued uncertainty over the status of the CTA, we strongly advise all reporting companies who have not filed BOI reports to gather the necessary information to do so.  If the District Court grants the Motion and the injunction is lifted or otherwise modified, companies must be in a position to timely comply with the reporting requirements.

Next Steps

CCM will continue monitoring developments and provide updates as the case progresses. For additional resources, visit the CCM CTA Resource Library.