Corporate Transparency Act Update: No Enforcement Against U.S. Companies

This blog post is about the Corporate Transparency Act (CTA) – a new law that requires most small businesses to register with the federal government. For a brief overview of the CTA, please see our blog post from early last year.

What You Need to Know

• On February 27, FinCEN temporarily suspended CTA enforcement until new rules and deadlines were issued.
• On March 2, the Department of Treasury announced that it will not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners even after the new rule changes and deadlines take effect.
  • In the near future, FinCEN will propose new rules and deadlines that will focus on foreign reporting companies only.
• The CTA penalties are mandated by statute, meaning that the Department of Treasury may not have the authority to suspend enforcement in this way.
  • If challenged, the Treasury’s decision may end up in court. However, any such challenge would take a long time to resolve, and the result is unknown.
  • If the statute remains unchanged, future presidential administrations may also be able to resume enforcement.
• Other challenges and potential changes to the CTA remain ongoing.
  • The House of Representatives unanimously passed a bill extending the deadline to January 2026. However, the Senate still needs to pass it before it goes into effect.
  • The Fifth Circuit Court of Appeals is still considering the constitutionality of the CTA, with oral arguments currently scheduled for April 1, 2025.

Should You File?

For the time being, filing is once again voluntary for all business entities.

U.S.-based businesses:

• Do not need to file now.
• Will not need to file for the foreseeable future.

Foreign-based businesses:

• Do not need to file now.
• Will be required to file at some point in the near future once new rules are issued.

All businesses should continue to monitor developments in case of another sudden change to the rules.

How Does the CTA Define a “Foreign Business?”

Under the current regulations, a “foreign reporting company” is simply defined as:

• A corporation, limited liability company, or other entity;
• Formed under the law of a foreign country; and
• Registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.

Further, foreign companies still qualify for all of the exemptions available to domestic companies. This includes the “large operating company” exemption, which applies to a business that meets all of the following criteria:

• Employs more than 20 full-time employees in the United States;
• Have more than $5 million in gross receipts or sales, as identified in the company’s U.S. tax return, and
• Has an operating presence at a physical office within the United States.

As FinCEN works on the new rules, it is entirely possible that the above definition and the applicable exemptions could change. Businesses that have foreign operating presences should be on alert for when the new rules are announced.

Can the Treasury Suspend Enforcement Against U.S. Businesses?

The penalties for failing to report under the CTA are mandated by statute. Usually, this would mean that:

1. It would require an act of Congress to change the penalties and;
2. The Treasury and other agencies would not have the unilateral authority to suspend enforcement.

With that said, federal agencies and the powers of the executive branch are currently going through a series of unprecedented changes, including:

• The judicial overturning of the “Chevron Doctrine,” which had granted federal agencies significant discretion when interpreting and administering the law

• The White House’s recent claim that the President and the Attorney General (subject to the President’s supervision and control) have the sole authority to interpret the law for the executive branch

It is possible that the Treasury Department’s position could be challenged in court. However, such cases would likely take a long time to resolve, and the results are difficult to guess.

If the statute remains unchanged, a future administration could revive the dormant penalties and resume enforcement. If this were to occur, enforcement would likely come with new deadlines and, potentially, new rules.

Critchfield Will Continue to Monitor Developments

This latest announcement appears to sound the death knell for the CTA—at least for U.S.-based businesses. However, many unknowns remain, and sudden surprises now characterize this law.

The attorneys at Critchfield will continue to monitor developments and inform clients as changes become apparent. For updates, check this website and our social media channels.

Tagged In:corporate and businesscorporate governanceCorporate Transparency ActFinancial Crimes Enforcement NetworkFinCEN