The CTA
The Corporate Transparency Act (“CTA”), a part of the Anti-Money Laundering Act of 2020 (“AMLA”), was enacted in 2021 to closely monitor the ownership information of certain domestic and foreign business entities doing business in the United States. Under this federal legislation, which took effect January 2024, the federal government hoped to address and counteract money laundering, terrorist financing, corruption, tax fraud, and other illicit activities by requiring business entities to provide information of their “Beneficial Owners.” Learn more about the CTA itself from our previous article located here.
FinCEN’s Interim Final Rule: BOI Reporting Narrowed to Foreign Entities Only
On March 26, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that significantly narrows the scope of Beneficial Ownership (BOI) reporting requirements under the Corporate Transparency Act (CTA). This change eases burdens on businesses located in the U.S., while still requiring ownership reporting requirements on foreign entities.
Key Changes Under the New Rule
Domestic Entities Exempted
FinCEN has proposed removing the requirement for U.S. companies (“domestic reporting companies”) and their beneficial owners to report BOI to FinCEN.
Revised Definition of “Reporting Company”
The definition of a “reporting company” has been revised to apply only to foreign entities, being those entities formed under the law of a foreign country and registered to do business in a U.S. state or Tribal jurisdiction, by a filing with a secretary of state or similar office.
Foreign Reporting Companies Still Required to Report
Entities previously known as “foreign reporting companies” must continue to report BOI to FinCEN. They are no longer required to report any U.S. persons as beneficial owners.
Special Rule for Foreign Pooled Investment Vehicles
These entities must report the BOI of individuals with substantial control, but only if those individuals are not U.S. persons. If only U.S. persons exercise control, no reporting is required.
Updated Reporting Deadlines for Foreign Entities
Foreign entities that meet the new definition of a “reporting company” must comply with the updated deadlines. Entities that were registered before March 26, 2025, must file their BOI reports no later than April 25, 2025.
Foreign entities registered on or after March 26, 2025: the BOI report must be filed within 30 calendar days of receiving notice that their registration is effective.
Rationale for the Interim Rule
The issuance of this interim rule follows a series of legal challenges to the CTA, which raised constitutional concerns about the federal government’s authority over business formation.
In Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-478 (E.D. Texas Dec. 3, 2024), following a motion filed by the plaintiffs, the U.S. District Court for the Eastern District of Texas granted an injunction preventing the federal government from enforcing the CTA and its associated reporting requirements. The six plaintiffs, one private individual and five business entities, with the individual serving as CEO of one of the entity plaintiffs, had not submitted the beneficial ownership information (BOI) reports required by the CTA. They argued that the CTA exceeded Congress’s constitutional authority, and that enforcement would infringe on their constitutional rights.
The court found the plaintiffs likely to succeed on their claim, concluding that Congress likely lacks authority under the Commerce and Necessary and Proper Clauses to enforce the CTA. It did not reach the First or Fourth Amendment arguments. Judge Mazzant emphasized that courts have historically struck down federal laws exceeding congressional authority, even if passed in good faith. He found a nationwide injunction was warranted and deemed the CTA and its reporting requirements likely unconstitutional.
Although district courts in Texas Top Cop Shop, Inc. v. Garland and Smith v. U.S. Dep’t of the Treasury issued preliminary injunctions blocking the CTA, those rulings were stayed pending appeal. The Fifth Circuit initially paused enforcement in Texas Cop Shop but later vacated the stay. On January 23, 2025, the U.S. Supreme Court granted the federal government’s emergency request to stay the injunction, allowing FinCEN to enforce the CTA. The statute remains enforceable as its constitutionality is reviewed by the Fifth Circuit.
A similar ruling was issued in Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-336 (E.D. Tex. Jan. 7, 2025), further halting enforcement of the CTA. In response, FinCEN suspended enforcement and, on March 2, 2025, announced its intent to revise the rule. The result is this interim rule, which narrows the scope to focus on foreign entities.
FinCEN acknowledged that while foreign entities present greater national security and illicit finance risks, the burden placed on small domestic businesses by the original BOI reporting requirements outweighed the benefits. FinCEN also cited Executive Order 14192, issued by President Trump, which directs federal agencies to reduce unnecessary regulatory burdens and support economic growth among domestic companies.
Economic Impact
The revised rule is expected to reduce compliance costs by more than $9 billion annually and eliminate an estimated 91 million burden hours in reporting obligations, which has mostly affected small domestic businesses. (See pages 22-23 and 30 of the Interim Final Rule).
What’s Next
In conclusion, following the lifting of the preliminary injunction on the Corporate Transparency Act (CTA), FinCEN has resumed enforcing the law, which mandates that companies disclose their beneficial ownership information. This move is intended to strengthen efforts against financial crimes like money laundering and terrorism financing by increasing transparency. While enforcement is back in place, FinCEN has stated it will delay imposing penalties until it issues an interim final rule and sets updated compliance deadlines, giving businesses time to prepare and meet the requirements.
The original reporting requirements under the Corporate Transparency Act (CTA) are once again in effect and must be followed by both domestic and foreign entities. Concurrently with ongoing litigation, FinCEN issued an interim final rule on March 2, 2025, which narrows the scope of reporting to primarily target foreign entities. This revised rule was published in the Federal Register on March 26, 2025, and FinCEN is currently accepting public comments through May 27, 2025. A final rule is anticipated later this year.
Kuiper Law Firm, PLLC, specializes in Business Law and Corporate Transactions. We will continue to monitor any updates regarding the Corporate Transparency Act and the outcome. If you have any questions about the information in this article, please do not hesitate to contact us.
