The Corporate Transparency Act litigation took yet another turn in January 2025 when the Supreme Court of the United States entered the fray. On January 23, 2025, the Court granted the government's application to stay the preliminary injunction in Texas Top Cop Shop, Inc. v. McHenry, temporarily lifting the bar on CTA enforcement that the Fifth Circuit had maintained since late December 2024. But the story does not end there, and the practical effect on businesses is more nuanced than the headline suggests.

The Supreme Court's Order

The Supreme Court's order was procedural rather than substantive. The Court did not address the merits of the constitutional challenge to the CTA. Rather, it stayed the preliminary injunction pending the Fifth Circuit's resolution of the appeal, finding that the government had made a sufficient showing on the traditional stay factors, including the likelihood of success on the merits and irreparable harm to the government's law enforcement interests.^[1]

Justice Gorsuch dissented, joined by Justice Thomas, arguing that the government had not carried its burden of showing that the injunction should be stayed. The dissent emphasized the significant compliance burdens the CTA imposes on millions of small businesses and questioned whether the government had demonstrated the kind of irreparable harm that justifies disturbing a lower court's preliminary injunction.

The Second Injunction: Smith v. U.S. Department of the Treasury

Despite the Supreme Court's action in Texas Top Cop Shop, CTA enforcement remains suspended. This is because a separate nationwide injunction was issued on January 7, 2025, by Judge Mazzant in Smith v. U.S. Department of the Treasury, another case in the Eastern District of Texas challenging the CTA's constitutionality. The Supreme Court's stay of the Texas Top Cop Shop injunction did not affect the Smith injunction, which remains in full force.^[2]

As a result, the practical effect of the Supreme Court's order is limited. Businesses are still not required to file beneficial ownership information reports, and FinCEN has confirmed that it will not impose penalties for noncompliance while the Smith injunction remains in effect. The government would need to obtain a stay or reversal of the Smith injunction as well before enforcement could resume.

The Litigation Landscape

The CTA now faces challenges in multiple federal courts. The Fifth Circuit has scheduled expedited oral argument on the merits of the Texas Top Cop Shop appeal. The Smith case is proceeding on a parallel track. Additional challenges have been filed in other jurisdictions. The possibility of conflicting appellate rulings increases the likelihood that the Supreme Court will ultimately need to address the CTA's constitutionality on the merits.

The constitutional questions remain the same ones we have previously discussed: whether Congress exceeded its enumerated powers in requiring state-registered entities to report their ownership information to a federal agency. The Supreme Court's willingness to stay the injunction suggests that at least a majority of the justices believe the government has a reasonable chance of prevailing on the merits, but it is far from a definitive signal about the ultimate outcome.

What Businesses Should Do

Our guidance remains consistent with our prior recommendations: prepare to file even though filing is not currently required. The information needed for a beneficial ownership report should be compiled and kept current. Businesses with complex ownership structures should identify all beneficial owners, including individuals who exercise substantial control. When enforcement resumes, whether through judicial resolution or legislative action, businesses that have already prepared will be able to comply quickly and avoid last-minute scrambles.

We will continue to track the CTA litigation as it moves through the courts and provide updates as significant developments occur. In the meantime, the most prudent course remains vigilant preparation combined with patience as the constitutional questions are resolved through the appellate process.