Update as of February 21, 2025: The Corporate Transparency Act is now enforceable following a federal court decision on February 17, 2025. The deadline for most businesses to file Beneficial Ownership Information (BOI) reports has been extended to March 21, 2025. For more details, see the updated section at the end of this article.

The Corporate Transparency Act (CTA) has been a hot topic in recent months, leaving many businesses unsure about their compliance obligations. While the law was designed to enhance corporate transparency and combat financial crimes, its enforcement has been delayed due to ongoing legal challenges. Here’s a breakdown of the current situation as of January 28, 2025.

What is the Corporate Transparency Act?

Enacted as part of the Anti-Money Laundering Act of 2020, the CTA requires certain businesses, known as “reporting companies,” to file Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN). The goal is to identify individuals who own or control these entities, thereby preventing illicit financial activities such as money laundering and tax evasion.

Why is the CTA Not Being Enforced?

Legal challenges questioning the CTA’s constitutionality have delayed its enforcement:

• January 23, 2025: The U.S. Supreme Court lifted a nationwide injunction issued in Texas Top Cop Shop v. McHenry, which initially blocked FinCEN from enforcing the law. This led to speculation that reporting requirements were reinstated.
• January 7, 2025: A separate nationwide injunction in Smith v. U.S. Department of the Treasury remains in effect, preventing FinCEN from enforcing the CTA’s reporting rules.

Currently, FinCEN has confirmed that businesses are not required to file BOI reports while the Smith injunction is in place. Voluntary submissions are allowed but not mandatory.

What Does This Mean for Businesses?

For now, businesses can operate under the following guidelines:

• No Mandatory Reporting: Reporting companies are not legally obligated to file BOI reports with FinCEN.
• No Penalties: Businesses will not face penalties for failing to file during this period.
• Voluntary Compliance: Companies may choose to voluntarily submit BOI reports to prepare for potential future enforcement.

What’s Next?

Several developments could change the status quo:

1. Court Proceedings: The Fifth Circuit Court of Appeals will hear arguments on the CTA’s constitutionality in March 2025. The decision could either uphold or overturn the law.
2. Legislative Action: Efforts to repeal or amend the CTA are underway in Congress, but their success remains uncertain.
3. Potential Supreme Court Review: Depending on lower court rulings, this issue could return to the Supreme Court for further clarification.

Key Takeaways

The legal landscape surrounding the CTA is complex and evolving. Businesses should:

• Stay Informed: Monitor legal updates and court rulings.
• Consult Legal Counsel: Seek advice if unsure about obligations.
• Prepare Proactively: Consider voluntary compliance to stay ahead of potential enforcement.

By staying informed and prepared, businesses can navigate this uncertain period with confidence.

Practical Steps for Businesses

To prepare for potential enforcement, businesses can take the following steps:

1. Review Ownership Structures: Ensure all beneficial ownership information is accurate and up to date.
2. Maintain Records: Keep clear documentation of ownership and control structures.
3. Engage Industry Resources: Stay connected with subject matter experts for timely updates.

Conclusion

While reporting under the CTA remains voluntary for now, businesses should take advantage of this time to prepare. Understanding your obligations and staying informed will reduce the risk of non-compliance if enforcement resumes. Legal clarity may be months away, but proactive steps today can save time and resources in the future.

Recommended Reading

• National Law Review: Corporate Transparency Act Reporting Remains Voluntary
• Debevoise & Plimpton: CTA Reporting Remains on Pause
• Akerman LLP: CTA Reporting Requirements Remain Voluntary
• Sidley Austin LLP: Supreme Court Lifts CTA Injunction
• Davis Wright Tremaine: Fifth Circuit Court Updates on CTA

Update as of February 21, 2025: Corporate Transparency Act Developments

Since this article was originally published on January 28, 2025, there have been significant developments regarding the Corporate Transparency Act (CTA):

1. Deadline Extension: Following a February 17, 2025, decision by the U.S. District Court for the Eastern District of Texas in Smith v. U.S. Department of the Treasury, the nationwide injunction blocking CTA enforcement has been lifted. As a result, the Financial Crimes Enforcement Network (FinCEN) announced that the deadline for most companies to file Beneficial Ownership Information (BOI) reports has been extended to March 21, 2025.

2. Potential Further Modifications: FinCEN has indicated that it is considering further modifications to filing deadlines and reporting requirements. These changes aim to reduce compliance burdens on lower-risk entities, including many small businesses. FinCEN plans to announce any additional updates before the March 21 deadline.

3. Legislative Action: The U.S. House of Representatives passed H.R. 736, which proposes extending the BOI reporting deadline for entities formed before January 1, 2024, to January 1, 2026. A companion bill (S. 505) is currently under consideration in the Senate and may further impact reporting requirements.

4. Compliance Recommendations: Despite potential future changes, non-exempt companies are encouraged to complete their BOI reports as soon as possible to meet the current March 21 deadline and avoid penalties.

For more details on how to file BOI reports or check your company’s compliance status, visit FinCEN’s BOI Reporting Portal.