The implementation of the Corporate Transparency Act (CTA) has hit another bump on the road, as its enforcement has been delayed amid legal challenges, leaving millions of small business owners uncertain about reporting requirements. This delay was triggered by the U.S. Court of Appeals for the Fifth Circuit, which issued a new injunction temporarily halting the requirement for beneficial ownership information (BOI) filings by companies.
The CTA was aimed at enhancing transparency and combating financial crimes by mandicating specific disclosures from businesses about their beneficial owners—defined as individuals who directly or indirectly hold at least 25% ownership or have substantial control over the entity. According to the Financial Crimes Enforcement Network (FinCEN), which is part of the Treasury Department, these disclosures are intended to help law enforcement agencies tackle issues like money laundering and terrorism financing.
But recent court rulings have changed the timeline for compliance. On December 3, 2024, the federal district court in Texas initially blocked the enforcement of these reporting rules, causing confusion among small business owners who scrambled to understand whether they would need to file BOI reports due by January 1, 2025. Then, on December 23, the Fifth Circuit overturned this block but within days vacated it again on December 26, effectively reinstalling the temporary halt to enforcement of the CTA requirements. The new deadline for compliance remains unclear, throwing small business owners' plans and preparations for compliance off course.
The legal changes mean businesses are currently not required to file BOI reports to FinCEN and won't face liabilities for non-compliance during the injunction. This reprieve grants businesses additional time to sort out the necessary documentation but also increases uncertainty as they await clearer legal guidance. "The bottom line is... the CTA BOI reporting requirements are back to being voluntary, pending the appeal," noted Daniel Stipano, a partner at the law firm Davis Polk & Wardwell.
This halt is significant for the estimated 32.6 million businesses expected to comply, particularly small companies, which dominate the U.S. economy. Under the proposed rules, exemptions are provided for certain types of businesses, namely those with gross sales exceeding $5 million or employing over 20 individuals. Nevertheless, the potential civil penalties for failing to comply with the CTA having previously been up to $591 per day, plus possible criminal fines and even prison time, compels business owners to stay informed.
While the requirement is on hold, business owners are urged to remain proactive. FinCEN has recommended companies assess their eligibility under the CTA, gather necessary information about their beneficial owners—including names, addresses, and dates of birth—and monitor legal updates surrounding the responding litigation.
Stipano emphasized, "While it is not known how long the injunction will remain in effect, the case is calendared for oral argument en banc on March 25, 2025, so we expect the injunction will be effective at least through March." Business owners must be vigilant during this time of ambiguity, as they may need to pivot quickly if the legal situation changes.
Staying informed about developments on the CTA and FinCEN’s responses will be beneficial for business planning. Regularly checking authoritative news sources and FinCEN updates will help companies prepare adequately for any potential future requirements. Seeking insights from legal and compliance professionals will also give owners confidence as they tread these sometimes murky waters.
The CTA was established to fundamentally change how ownership information is reported and handled, reflecting the growing demand for transparency amid concerns of financial malfeasance. With the current pause, business owners find themselves both relieved and concerned, caught between the responsibility of compliance and the uncertainty of federal mandates' return. The balance lies on the March court hearing, where the future of these reporting requirements will be more clearly defined. Until then, the call for diligence among businesses remains as strong as ever.