Corporate Transparency Act

The Corporate Transparency Act – An Update

Written by Ruder Ware Attorneys: Amy Ebeling, Jake Schraeder and Morgan Sweeney

What is the Corporate Transparency Act?

The Corporate Transparency Act (“CTA”) was enacted as a part of the National Defense Authorization Act for Fiscal Year 2021 after the House of Representatives voted 322-87 and the Senate voted 81-13 to override President Trump’s veto of the defense bill.

Effective as of January 1, 2024, the CTA requires “beneficial owners” of “reporting companies” to disclose personal information to the Financial Crimes Enforcement Network (“FinCEN”). This information is disclosed by submitting a “Beneficial Ownership Information Report” (“BOIR”). These disclosures aim to combat financial crimes, money laundering, and terrorism financing by enhancing transparency in corporate ownership structures.

As a general rule, if an entity was formed by filing a document with a government office, it is a “reporting company” and must comply with the CTA requirements. There are, however, exemptions to this general rule. For instance, banks, credit unions, insurance companies, and certain types of tax-exempt entities likely qualify for an exemption. There are 23 total exemptions for which a reporting company may qualify. If no exemption applies, then an entity must report personal information about each of its beneficial owners.

A BOIR discloses personal information about the “beneficial owners” of your entity. This defined term is slightly misleading in that a beneficial owner does not need to be an owner of the entity. Instead, a “beneficial owner” is any individual who, directly or indirectly, (1) exercises substantial control over a reporting company or (2) owns or controls at least 25 percent of the ownership interests of the reporting company. Despite the clarity of the second prong, analyzing “substantial control” under the first prong can be challenging given the novelty of the law.

CTA's Court Challenges

Since the CTA came into effect, it has faced several court challenges, increasing the difficulty for potential reporting companies to navigate compliance. Two of the most notable court challenges began in federal district courts in Texas.

One, Texas Top Cop Shop, Inc., et al. v. McHenry, et al., was the first instance of a federal district court blocking enforcement of the CTA. In early December 2024, a federal district court in Texas issued a landmark decision postponing the enforcement of the CTA. The Court held that the CTA exceeded Congress’ power and was therefore likely unconstitutional. However, after an appeal to the U.S. Supreme Court, the block on the CTA was paused. Currently, the parties are working through a briefing schedule set by the 5th Circuit Court of Appeals, culminating in oral arguments on March 25, 2025.

Even after the Supreme Court paused the block on CTA’s enforcement, reporting companies were still not required to file due to another Texas federal district court case, Smith, et al. v. U.S. Department of Treasury, et al.. However, the block was later lifted, and the CTA and its reporting requirements were once again back in effect, but not for long.

Pending Legislative Action

While the federal courts were evaluating the enforcement of the CTA, the legislator introduced two pieces of relevant legislation.

The “Repealing Big Brother Overreach Act,” which seeks to repeal the CTA, was reintroduced on January 15, 2025. The bill’s mission is to eliminate the CTA’s reporting requirements. As of now, the House of Representatives has not passed the bill. It is uncertain whether this bill will have sufficient support moving forward.

Another bill was introduced on January 24, 2025, titled the “Protect Small Businesses from Excessive Paperwork Act.” The bill seeks to extend the CTA’s reporting deadline to January 1, 2026. Despite being introduced later than the Repealing Big Brother Overreach Act, the bill was passed by the House of Representative with a unanimous vote and now moves to the Senate. On February 11, the Senate referred the bill to the Committee on Banking, Housing, and Urban Affairs.

Where Does CTA Stand Today?

Most recently, the U.S. Department of the Treasury suspended enforcement of CTA for U.S. citizens and domestic reporting companies. On March 2, 2025, the Treasury announced that U.S. citizens and domestic reporting companies will no longer face penalties or fines for failure to report under the CTA.

In its announcement, the Treasury stated it plans to issue a proposed rulemaking that will narrow the reporting requirements only to foreign reporting companies. The Treasury stated that the proposed rule is “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.”

Although the Treasury will not impose penalties or fines on U.S. citizens or domestic reporting companies, an obligation to file remains. Accordingly, we hope to hear a definitive ruling in the near future. In the meantime, it is crucial to stay informed on the ever-evolving status of the CTA.