Michael Walker

Corporate Transparency Act Enforcement Suspended (Again!)

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In February 2025 and the previous December, Samuels Yoelin Kantor LLP posted blog articles relating to the Corporate Transparency Act (CTA), which requires certain companies to file beneficial ownership information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). FinCEN is the federal agency charged with enforcing the CTA.

In a confusing series of judicial and administrative actions, while FinCEN is not presently enjoined by the courts from enforcing the CTA, pending further administrative actions. However, in a press release issued by the Treasury Department on March 2, 2025, the Treasury Department announced that it was suspending enforcement against U.S. citizens or domestic reporting companies.

Here is a short timeline of the recent federal litigation involving the CTA:

  • December 3, 2024: In McHenry v. Texas Top Cop Shop, a federal district court issued an injunction stopping the federal government from enforcing the CTA on constitutional grounds.
  • December 23, 2024: The Fifth Circuit Court of Appeals halts the December 3rd Texas Top Cop Shop
  • December 26, 2024: The Fifth Circuit reverses itself and reinstates the Texas Top Cop Shop
  • January 7, 2025: In Smith v. U.S. Department of the Treasury, another federal district court issued a separate injunction stopping the federal government from enforcing the CTA on constitutional grounds.
  • January 23, 2025: The U.S. Supreme Court stays the injunction in the Texas Top Cop Shop case, pending further proceedings in the Fifth Circuit Court of Appeals.
  • February 19, 2025: The federal district court in the Smith case lifted its own injunction. With this action, the Smith court opened the door for the federal government to resume the enforcement of the BOI filing requirements under the CTA.

In the March 2, 2025 press release, the Treasury Department stated:

“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.”

So, what is the bottom line? Based on the Treasury Department’s press release, U.S. citizens and domestic reporting companies will not be subject to penalties or other enforcement actions for failure to file BOI reports.  Considering the personal information disclosure required by BOI reporting, along with the cost of compliance on businesses and their owners, SYK does not recommend that BOI reports be filed at this time.  We will follow further developments and post additional blog articles as appropriate.  If a company has non-US ownership, it does appear that there may be some BOI reporting that will be required in the future.

Finally, in a separate series of developments, Congress is trying to delay the CTA for a year (to January 1, 2026). A bill to that effect passed the House on February 10, 2025, by a vote of 408-0. A companion bill has been introduced in the Senate, but no further action has occurred in the Senate as of this writing.

 

– Michael D. Walker

Federal Court Enjoins Government from Enforcing the Corporate Transparency Act

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Corporate Transparency Update

The Corporate Transparency Act (CTA) was passed in an effort to combat financial crimes by and through companies. To do so, the CTA regulates “reporting companies,” or any corporation, LLC, or other similar business entity that is created or registered to do business in the U.S. by filing registration documents with the secretary of state or other similar office. The CTA contains a reporting requirement with a filing deadline of January 1, 2025, for all businesses that were formed before January 1, 2024. This reporting requirement mandates “reporting companies” to submit a report to FinCEN (the “Financial Crimes Enforcement Network,” an arm of the Department of the Treasury) that includes information regarding the companies’ owners and officers. Failure to comply with this reporting deadline may be met with significant penalties, such as fines and jail time.

The passage of the CTA has been met with push-back from courts and lawmakers, who argue that the reporting requirements and procedures have not been properly publicized or clarified for companies to meet the January deadline. Additionally, the reporting requirements of the CTA have been challenged in several federal district courts, including Texas Top Cop Shop, Inc., v. Garland, 2024 WL 4953814 (E.D. Tex.), a cased decided by the U.S. District Court for the Eastern District of Texas on December 3, 2024.

In Texas Top Cop Shop, Inc., the plaintiffs successfully argued that the reporting requirements of the CTA substantially threaten plaintiffs with irreparable harm that outweighs any damage that an injunction would have on the government. The court agreed that the CTA’s reporting requirements cause damage to plaintiffs in two different forms. The first being the expenditure of resources and time to prepare the required report. The second is revealing confidential business information under threat of criminal punishment, which the court agreed could be a First, Fourth, Ninth, and Tenth Amendment violation.

In reaching this decision, the Texas court held that the CTA, together with the administrative rules that implement the CTA, are likely unconstitutional as outside of Congress’s power. Hence, the court held that the plaintiffs carried their burden to show a substantial likelihood of success on the merits, and therefore, granted plaintiffs request for a preliminary injunction.

This means that for now, the government cannot enforce the reporting requirements of the CTA and therefore, the January 1 filing deadline is technically on hold.

In addition, on its CTA website, the government stated: While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.

How should businesses proceed? In response to the court’s decision to grant a preliminary injunction, on December 5, 2024, the government responded with notice that they are going to appeal the Texas court’s decision, upon which the court’s decision could be reversed or upheld. Given the uncertain nature of the CTA reporting requirements, companies that qualify as a “reporting company” may want to consider voluntarily filing their report to FinCEN if they have not done so yet.

– Michael D. Walker, SYK Partner, and Josepheen Strauss, SYK Law Clerk

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