Small Businesses Temporarily Spared as Fifth Circuit Halts Beneficial Ownership Deadline
By Richard Luthmann
The Fifth Circuit Court of Appeals has reinstated an injunction blocking the enforcement of the Financial Crimes Enforcement Network’s (FinCEN) Beneficial Ownership Information Reporting (BOIR) requirement. This reversal halts compliance deadlines under the Corporate Transparency Act (CTA) and marks the latest chapter in a heated legal battle over federal regulatory authority.
In its Thursday decision, the appeals court overruled an earlier order, citing a need to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.”
The ruling spares businesses from the January 1, 2025, reporting deadline, putting the future of the CTA’s enforcement in doubt.
CTA Compliance on Hold Amid Legal Challenges
The CTA, passed as part of the National Defense Authorization Act in 2021, mandates that entities such as corporations and LLCs disclose detailed information about their beneficial owners to FinCEN. The law aims to combat money laundering but has drawn sharp criticism for imposing compliance burdens on small businesses and raising privacy concerns.
The injunction was initially granted on December 3, 2024, by a federal district court in Texas in the case Texas Top Cop Shop, Inc. v. Garland. The court’s decision froze the CTA’s BOI reporting rule, citing potential constitutional overreach. The Department of Justice (DOJ) appealed the ruling, and on December 23, a Fifth Circuit motions panel temporarily lifted the injunction, prompting FinCEN to extend the BOIR filing deadline to January 13, 2025.
Thursday’s reversal reinstates the injunction, leaving businesses in legal limbo. Reporting companies are now uncertain whether or when they must comply with the CTA’s requirements.
Implications for Businesses
The BOIR mandate requires entities to disclose personal details, including names, addresses, and identification numbers, for all beneficial owners. New entities formed after January 1, 2024, must also report on “applicants” involved in their formation. Critics argue the rules unfairly burden small businesses and create risks of privacy violations.
“This back-and-forth is exhausting for small business owners,” said plaintiff Russell Straayer. “We want clarity, not constant uncertainty.”
The American Institute of Certified Public Accountants (AICPA) has advised members to stay prepared despite the shifting legal landscape. “We are seeking guidance from FinCEN,” the AICPA said, urging clients to gather necessary information in case the injunction is lifted.
Legal Stakes and Constitutional Questions
The Fifth Circuit’s decision underscores the constitutional stakes involved. The court expedited the case for oral arguments but reinstated the injunction to maintain the status quo during its review.
The legal showdown pits federal anti-money laundering objectives against privacy and operational concerns from businesses.
This is a crucial test of constitutional limits on federal authority. The outcome could redefine the balance between national security priorities and individual rights.
DOJ and FinCEN Defend the CTA
The DOJ argues that the CTA is essential to closing loopholes that criminals and foreign adversaries exploit. FinCEN has described the rules as vital to national security efforts. However, critics counter that the reporting requirements inundate agencies with unnecessary data while placing law-abiding citizens at risk.
“This law doesn’t just target bad actors,” said a Libertarian Tax advocate. “It treats every business owner like a suspect.”
What’s Next?
As the injunction remains in effect, businesses can hold off on BOIR filings for now. The Fifth Circuit will proceed with oral arguments in an expedited timeline, but a resolution could take months. With the high stakes, many legal analysts believe the case could ultimately reach the Supreme Court.
The clock is ticking for now, and millions of businesses across the country await clarity as this pivotal legal battle unfolds.
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