UPDATE: On March 2, the U.S. Department of the Treasury announced that it is suspending all Corporate Transparency Act (CTA) enforcement action against U.S. citizens and domestic reporting companies. The announcement further clarified that the Treasury Department will not take such actions even after the forthcoming rules suggested in FinCEN’s February 27 announcement take effect.
In support of the current administration’s agenda to reduce burdensome regulation, the Treasury Department will issue proposed rulemaking narrowing the scope of the CTA to apply to foreign reporting companies only. At least for the time being, and foreseeable future, compliance with the CTA is no longer required.
FEBRUARY 27 UPDATE: On February 27, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the CTA by the current deadlines. As written, this appears to extend all deadlines applicable to all companies, whether formed prior to 2024 or those that were formed from and after January 1, 2024. By March 21, 2025 (the current extended deadline for filing entities formed prior to January 1, 2024, and certain other entities), FinCEN intends to issue an interim final rule that extends BOI reporting deadlines.
The enforcement standstill will be in place until the forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. The announcement indicates that FinCEN is intending to undertake further rulemaking to be issued later this year and will consider further changes (extensions) in deadlines.
A recent ruling by the U.S. District Court for the Eastern District of Texas has reinstated the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA), which had been suspended for a little over a month as the result of an order issued by the federal court. In response to the ruling, the Financial Crimes Enforcement Network (FinCEN) has extended the deadline to file a BOI report to March 21, 2025. Affected reporting companies should be prepared to file by the new deadline, pending any legislative or judicial activity in the interim.
Background of the CTA
The CTA, enacted as part of the National Defense Authorization Act for Fiscal Year 2021, aims to combat money laundering and terrorist financing by requiring certain businesses to report beneficial ownership information to FinCEN. This information includes beneficial owners’ full legal names, dates of birth, residential street addresses, and the identifying number and an image of a government-issued identification document. Although the CTA passed with bipartisan support, it was criticized by some business groups that argued the act imposed a heavy reporting burden on legitimate businesses.
Suspension of CTA Deadline Lifted
A January 7 order by the Eastern District of Texas in Smith v. U.S. Department of the Treasury, 6:24-cv-00336 (E.D. Tex.), suspended the CTA beneficial ownership filing deadline on a nationwide basis, extending to all filing companies regardless of date of formation. The U.S. Department of the Treasury filed an appeal to the U.S. Court of Appeals for the Fifth Circuit and also sought a stay of the district court’s order. On February 17, the district court granted the Treasury Department’s motion and stayed the injunctive relief (the suspension) it previously granted, meaning the CTA could now be enforced. The district court based its ruling on the U.S. Supreme Court’s order in McHenry v. Texas Top Cop Shop, which stayed injunctive relief previously granted in that case.
FinCEN Guidance
As a result of the stay, on February 18, FinCEN issued updated guidance on the BOI reporting requirements. Recognizing that many reporting companies need additional time to comply with the filing obligations, FinCEN extended the deadline 30 calendar days to March 21 for the majority of affected entities. In extending the deadline from February 19, FinCEN noted that it will “assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.” FinCEN also announced an intention to develop a process that would revise the BOI reporting requirement to reduce the burden for lower-risk entities. For reporting companies previously given a deadline later than March 21, FinCEN requires those entities to file their initial BOI report by the later deadline.
But Wait … Legislative Action
On February 10, the U.S. House of Representatives approved, by a 408-0 vote, H.R. 736, the Protect Small Businesses from Excessive Paperwork Act of 2025, to amend Title 31 of the U.S. Code to extend to January 1, 2026, the deadline for filing BOI reports for reporting companies formed or registered before January 1, 2024. U.S. Sen. Tim Scott, R-South Carolina, introduced a companion bill (S. 505) on February 11, which was referred to the Senate Committee on Banking, Housing and Urban Affairs. As of publication, there has been no further action or guidance on when the next action might be taken. Neither bill affects filing deadlines for entities formed after January 1, 2024.
Other Cases Involving CTA Enforceability
In Texas Top Cop Shop v. Garland, No. 4:24-cv-00478-ALM (E.D. Tex. Dec. 3, 2024), the Eastern District of Texas court had issued a preliminary injunction against enforcement of the CTA and its implementing regulations and stayed the reporting rule’s compliance deadline of January 1, 2025, for entities created before 2024. The injunction had nationwide scope. In response, the defendants filed an appeal with the Fifth Circuit and also filed a motion with the district court to stay the preliminary injunction, along with a similar motion in the Fifth Circuit. The district court denied defendant’s motion on December 17. The Fifth Circuit issued an opinion and order staying the preliminary injunction on December 23, but then on December 26, a different panel of the Fifth Circuit issued an order lifting the stay. The defendants appealed to the U.S. Supreme Court and on January 23, the U.S. Supreme Court issued an order granting a stay of the preliminary injunction, meaning the CTA filing obligations could be enforced. Oral arguments on the merits (constitutionality of the CTA) are now scheduled to be heard by the Fifth Circuit on April 1.
It's expected that the Fifth Circuit’s decision in the Texas Top Cop Shop case will be appealed to the U.S. Supreme Court, particularly given the conflicting rulings issued by courts on the enforceability of the CTA. In addition to the Texas Top Cop Shop and Smith decisions in the Eastern District of Texas, the U.S. District Court for the Northern District of Alabama entered a declaratory judgment on March 1, 2024, in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. March 1, 2024), concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining the Treasury Department and FinCEN from enforcing the CTA against the plaintiffs. The U.S. Department of Justice filed an appeal to the U.S. Court of Appeals for the Eleventh Circuit and a decision is expected shortly.
Conversely, on February 14, 2025, the U.S. District Court for the District of Maine upheld the CTA in Boyle v. Bessent, rejecting one of several challenges across federal courts claiming Congress lacked the power to require companies to disclose their real owners.
Key Takeaways
Companies should be aware of the updated guidance issued by FinCEN on BOI reporting requirements and the pending legislative action and be ready to file beneficial ownership reports for filing entities formed prior to January 1, 2024, by the current March 21, 2025, deadline. However, given the landscape of both judicial and legislative activity, it may be prudent to continue to wait and see what unfolds in the short term.
As a reminder, filing entities formed on or after January 1, 2025, must file their BOI forms by the later of March 21, 2025, or 30 days after the date of formation (filing with the Secretary of State). Companies formed on or after January 1, 2024, must file their BOI forms by the later of March 21, 2025, or 90 days after the date of formation.
Stradley Ronon’s CTA Task Force is a multidisciplinary, dedicated team established to provide guidance on all facets of the act.
Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.
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