DOJ asks Supreme Court to block injunction on BOI reporting

The Justice Department (DOJ) filed an emergency application with the Supreme Court asking it to stay the district court injunction that is preventing the government from enforcing the Corporate Transparency Act and its requirements to report beneficial ownership information (BOI).

In its request, filed Tuesday, the DOJ said the government is likely to succeed in its case. “The Act’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism,” the DOJ wrote. “The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) that substantially affect interstate commerce.”

The requirements in the CTA, P.L. 116-283, also are “necessary and proper to effectuate several of Congress’s enumerated powers, including the power to regulate interstate and foreign commerce and to collect taxes, as well as Congress’s powers with respect to foreign affairs,” the DOJ said. “Even if there might be outlier circumstances in which the Act could be thought to exceed Congress’s powers, the Act complies with the Constitution in most of its applications, which suffices to defeat respondents’ facial challenge.”

The CTA “imposes only minimal burdens” on respondents while the court’s “universal injunction irreparably harms the federal government in multiple ways,” the request reads. “It prevents the government from executing a duly enacted Act of Congress, impedes efforts to prevent financial crime and protect national security, undermines the United States’ ability to press other countries to improve their own anti-money laundering regimes, and severely disrupts the ongoing implementation of the Act.”

On Friday, the Supreme Court set a deadline of Jan. 10 at 4 p.m. ET for the plaintiffs in the case to respond to the DOJ request.

The AICPA posted a statement on its BOI reporting resource center saying it “advises gathering required information and being ready to file if the injunction is lifted.”

The Financial Crimes Enforcement Network (FinCEN), which enforces the CTA, has estimated that over 32 million reporting companies will be required to file BOI reports.

In the courts

A federal district court issued the injunction in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24). Under the injunction, the CTA and the BOI reporting rule could not be enforced, and reporting companies would not need to comply with the Jan. 1, 2025, BOI reporting deadline pending a further order of the court.

The DOJ, which filed a notice of appeal two days later, had asked the Fifth Circuit to rule on its request for a stay by Dec. 27 “to ensure that regulated entities can be made aware of their obligation to comply before Jan. 1, 2025.”

Initially, a panel of judges on the Fifth Circuit said that “the government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality” and set aside the injunction. But three days later, another Fifth Circuit panel — comprised of the judges who will consider the appeal — reinstated the injunction.

Background

Under the CTA, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, limited liability company, or other similar entity.

Willful violations are punishable by a fine of $591 a day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.

AICPA advocacy

The AICPA and state CPA societies have written numerous letters to Congress and FinCEN, urging a delay in the reporting deadline. A one-year delay in BOI reporting requirements was included in a proposed spending bill in the House of Representatives several weeks ago. But the version of the bill that passed Congress, avoiding a government shutdown, did not include any BOI deadline provisions.

The AICPA regularly updates its BOI reporting resource center.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at [email protected].