Developments Regarding the Corporate Transparency Act – Courtesy of CEB

March 2025

Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is a section covering Corporate Transparency Act (“CTA”) developments as of March 2, 2025, taken from section 1.5G of the June 2025 update to Business Buy-Sell Agreements. §1.5G

8.         The Corporate Transparency Act

Corporate Transparency Act. The Corporate Transparency Act (CTA) (Pub L 116–283, 134 Stat 4604) became law as of January 1, 2021, and went into effect January 1, 2024. It imposes new federal requirements for reporting beneficial owner information (BOI) to FinCEN that are applicable to many domestic as well as foreign business entities, as well as imposing significant civil and criminal penalties for false reporting and failure to report. The CTA’s January 1, 2025 reporting deadline for BOI has been extended for most companies to March 21, 2025. However, as of February 28, 2025, FinCEN has announced that it is not issuing fines or penalties in connection with the above reporting requirements, and intends to issue an interim final rule no later than March 21, 2025 that further extends reporting deadlines for BOI. And on March 2, 2025, the Treasury Department announced that it would not enforce any penalties or fines against U.S. citizens, domestic reporting companies, or their beneficial owners either under the existing deadlines or after the forthcoming rule changes take effect. The Treasury Department will be further issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. In addition, nationwide injunctions against the CTA have been alternately imposed and then stayed in various federal courts pursuant to ongoing litigation. For further details, see below.

The Corporate Transparency Act (CTA) (Pub L 116–283, 134 Stat 4604) became law as of January 1, 2021, as part of the Anti-Money Laundering Act of 2020 (Pub L 116–283, Div F at §§6001–6511, 134 Stat 3388). It is codified in its entirety at 31 USC §5336, and provides that it will become effective when implementing regulations are finalized by the Secretary of the Treasury. 31 USC §5336(b)(5). For a summary of final and proposed regulations under the CTA, see https://www.fincen.gov/boi/Reference-materials. Under 31 CFR §1010.380(a), “reporting companies” (as defined in 31 USC §5336(a)(11) and 31 CFR §1010.380(c)) created before January 1, 2024, had until January 1, 2025, to submit the required reports to FinCEN. Entities formed on or after January 1, 2024,  but before January 1, 2025, must submit reports within 90 calendar days of the time they are formed or registered, while entities formed on or after January 1, 2025, must submit reports within 30 calendar days of the time they are formed or registered. Any change in ownership of the entity or in other information reported must be reported within 30 calendar days after the change. 31 USC §5336(b)(1); 31 CFR §1010.380(a).

Beneficial Ownership Information (BOI). The CTA is intended to better enable law enforcement to combat money laundering, terrorism financing, tax and securities fraud, and other crimes by imposing new federal reporting requirements for “Beneficial Ownership Information” (BOI) applicable to many domestic as well as foreign business entities. Information that “reporting companies” are required to report includes company legal names, trade names, and “doing business as” names; Internal Revenue Service taxpayer identification numbers (TINs); and the state, tribal, or foreign jurisdiction of formation. Information that must be reported for each “beneficial owner” and “company applicant” of a reporting company (31 USC §5336(b)(2)(A); 31 CFR §1010.380(b)(1)) includes full legal name; date of birth; complete current residential or business street address; and a unique identifying number from a nonexpired driver’s license, U.S. passport, or other acceptable identification document (or an identifying number obtained from FinCEN). An image of the document bearing the unique identifying number must be included in the report. There are significant civil and criminal penalties for false reporting and failure to report, including a civil penalty of not more than $500 per day that the violation continues, and a fine of not more than $10,000, imprisonment for up to 2 years, or both. See 31 USC §5336(h).

CTA Litigation.  In the Eleventh Circuit, on March 1, 2024, the CTA was declared unconstitutional by a federal district judge in Alabama. National Small Bus. United v Yellen (ND Ala 2024) 721 F.Supp.3d 1260. The court also permanently enjoined the federal government from enforcing the CTA—but the injunction is limited to enforcement of the CTA against plaintiffs the National Small Business Association (NSBA) and its member Isaac Winkles. Notably, the court did not issue a nationwide injunction. However, because the court held the NSBA had associational standing to sue on behalf of its 65,000 members, it is arguable that the injunction may prevent enforcement of the CTA against any business entity that is a NSBA member—and, indeed, FinCEN released a notice in response to the ruling, indicating FinCEN was not currently enforcing the order against the NSBA or its members (as of March 1, 2024) The notice is available at https://www.fincen.gov/news/news-releases/updated-notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448. The government appealed to the Eleventh Circuit Court of Appeals.

CTA Litigation In the Fourth and Ninth Circuits.  Federal appellate courts in the Fourth and Ninth circuits are also considering similar claims against the CTA. Community Ass’n Inst. v Yellen (ED Va, Oct. 24, 2024, No. 1:24–cv–1597) 2024 US Dist Lexis 193958; Firestone v Yellen (D Or, Sept. 20, 2024, No. 3:24–cv–1034–SI) 2024 US Dist Lexis 170085. The government is appealing in both circuits.

CTA Litigation In the Fifth Circuit. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction halting the government’s enforcement of the CTA nationwide. Texas Top Cop Shop, Inc. v Garland (ED Tex, Dec. 3, 2024, No. 4:24–CV–478) 2024 US Dist Lexis 218294. The court determined plaintiffs met their burden to show substantial likelihood of success on the merits of their US Const amend X challenge that the CTA is outside Congress’s power. The court issued a nationwide injunction for both the CTA (31 USC §5336) and the Reporting Rule (31 CFR §1010.380). Texas Top Cop Shop, Inc., 2024 US Dist Lexis 218294 at *115. The government appealed the district court’s injunction. Soon after, separate panels of the Fifth Circuit first granted (December 23) and then vacated (December 26) a stay of the district court’s injunction (Texas Top Cop Shop, Inc. v Garland (5th Cir, Dec. 26, 2024, No. 24-40792) 2024 US App Lexis 32702 (unpublished opinion)), with the Supreme Court ultimately staying the district court’s injunction—thus permitting enforcement of the CTA—pending disposition of the appeal on the merits at the Fifth Circuit. McHenry v Texas Top Cop Shop, Inc. (Jan. 23, 2025, No. 24A653) 604 US ___, 2025 US Lexis 424. Oral arguments in the Fifth Circuit appeal, Texas Top Cop Shop, Inc. v Bondi (5th Cir, No. 24-40792) are currently scheduled for April 1, 2025. However, before the Supreme Court ruled in McHenry, another Texas district court issued a nationwide injunction against enforcement of the CTA’s Reporting Rule.  Citing similar grounds to Texas Top Cop Shop, Inc.,  the district court’s opinion called the CTA “unprecedented in its breadth” and wrote that the statute exercises “federal power beyond constitutional limits.” Smith v United States Dep’t of the Treasury (ED Tex, Jan. 7, 2025, No. 6:24-cv-336-JDK) 2025 US Dist Lexis 2321 at *3. On February 5, 2025, the government filed notice of appeal to the Fifth Circuit of the preliminary injunction in Smith, and moved for a stay in the district court. On February 17, after considering the Supreme Court’s decision in McHenry, the Texas district court stayed its own injunction in Smith pending the appeal in the Fifth Circuit. This allowed FinCEN to resume enforcement of the CTA. On December 3, 2024, FinCEN had indicated that if the injunction in Smith were lifted, FinCEN would extend the deadline by 30 days from the date of the ruling.

WARNING► See below for discussion of regulatory and enforcement relief provided by FinCEN following the district court’s stay.

Legislative Relief Efforts. Efforts are underway in Congress to provide at least temporary relief from the CTA’s reporting requirements while litigation proceeds. On February 10, 2025, the House of Representatives passed H.R. 736, which would extend the CTA’s reporting deadline to January 1, 2026 for entities formed or registered before January 1, 2024. The bill passed with bipartisan support by a vote of 408-0. It and a companion measure, S. 505, are under consideration by the Senate. Practitioners should monitor these legislative developments.

Initial Regulatory Relief from FinCEN. On February 19, 2025, following the stay of the injunction in Smith, FinCEN provided a notice on its website stating that for most companies required to report under the CTA, the new BOI reporting deadline was March 21, 2025 (30 calendar days from the notice date). The notice also explained that reporting companies previously given a reporting deadline later than March 21, 2025 could still report by the later deadline. The notice acknowledged that the March 1, 2024 nationwide injunction in the Eleventh Circuit case Yellen. supra, remains in effect, enjoining enforcement of the CTA against plaintiffs National Small Business Administration (NSBA) and its member Isaac Winkles. The notice is available at https://www.fincen.gov/sites/default/files/shared/FinCEN-BOI-Notice-Deadline-Extension-508FINAL.pdf.

Enforcement Stay In Effect Pending Interim Final Rule. FinCEN issued a second notice on its website on February 28, 2025, stating that FinCEN

“will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update BOI reports by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed.”

FinCEN also stated that no later than March 21, 2025, it intends to issue an interim final rule that further extends BOI reporting deadlines. The second notice is available at https://www.fincen.gov/news/news-releases/fincen-not-issuing-fines-or-penalties-connection-beneficial-ownership.

Avenues for Further Regulatory Relief. FinCEN’s February 28, 2025 notice (discussed above) also stated that it anticipates issuing a notice of proposed rulemaking later this year to minimize the burden on small businesses, and will solicit public comment on potential revisions to existing BOI reporting requirements.

Notably, both of FinCEN’s February 2025 notices had stated FinCEN would prioritize CTA reporting for entities that pose the most significant law enforcement and national security risks. And the government had observed in its motion for a stay of the district court’s injunction in Smith, supra, that the CTA allows it to exempt from the statutory definition of “reporting companies” any other “entity or class of entities” for which “requiring beneficial ownership information” would not “serve the public interest” and “would not be highly useful” in “efforts to detect, prevent, or prosecute money laundering, the financing of terrorism … or other crimes” (quoting 31 U.S.C. § 5336, subd. (a)(11)(B)(xxiv)). Thus, it seemed possible that the government would consider exempting the vast majority of small business entities nationwide that do not pose such law enforcement and national security risks.  On March 2, 2025, the Treasury Department took a significant step in that direction (see below).

Treasury Announces Permanent Non-Enforcement of BOI Reporting Rule Against U.S. Citizens or Domestic Reporting Companies or their Beneficial Owners. On Sunday, March 2, 2025, the Treasury Department posted a notice on its website stating, in its entirety:

The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.

“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent.  “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”

The Treasury Department’s notice is available at: https://home.treasury.gov/news/press-releases/sb0038.

For a comprehensive discussion of the CTA, see Selecting and Forming Business Entities §§1.11A–1.11I (2d ed Cal CEB).