The Twists and Turns of the Corporate Transparency Act

H.R. 6395—1217, otherwise known as the “Corporate Transparency Act” (or “CTA”), was passed by the U.S. House of Representatives in late 2019.[1] It was enacted into law in January 2021, when Congress overrode President’s Trump’s veto of the 2021 National Defense Authorization Act.[2]

In the United States, individuals are able to establish entities at the state level, such as a corporation or limited liability company. Each state differs on what information is required to form an entity. For example, when creating an LLC in Delaware, only the registered office and registered agent information is required.[3] However, Florida requests additional information, such as the principal address, mailing address, and authorized persons.[4]

Although requirements differ, states generally do not inquire about a very impactful detail when an entity is formed: ownership information.

An entity always has an owner. Whether that ownership info is documented somewhere is not guaranteed. Many companies are created by lay persons without guidance from a professional. These persons frequently do not prepare an internal document, like an operating agreement, which reflects the company’s current owners.

The key is: who is aware of the ownership structure. Since membership is just internal information known to those involved with the company, the state and other agencies have no true knowledge of who the company owners are, and if they have been changed.

This is what the CTA seeks to redress. Actors involved in illicit activities avoid detection by concealing company ownership.[5] In response, the CTA established the Beneficial Ownership Information (“BOI”) reporting requirement: certain U.S. and foreign companies must report who the beneficial owner of the company is.[6] This is intended to increase the capability of financial and law enforcement agencies to detect money laundering, fraud, and other illegal behavior.

The penalty for knowingly disclosing false information via a BOI report could be up to a $10,000 fine and two years in prison. Additional fines and prison time may be imposed based on the length of the violation, and related illegal activity.

Reporting requirements began on January 1, 2024 for pre-existing companies and newly formed companies.[7] Deadlines and penalties were set to begin on January 1, 2025.

While the intent of the CTA is good, its effect is rather burdensome. Most reporting companies consist of law-abiding US citizens attempting to establish entities for small business or other purposes. Owners are required to file initial reports, and updated reports if company ownership changes.

As previously mentioned, many company filers have a limited understanding of company ownership, never mind how to report it. The BOI frequently asked questions page regarding reporting is extensive, even for a professional. Individuals must spend valuable time and money either navigating the reporting requirements on their own, or consulting a professional.

The constitutional legitimacy of the CTA was challenged in multiple federal lawsuits. This came to a head at the end of 2024, when the US District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting enforcement of the CTA. The injunction quickly went up to the Fifth Circuit, where it was reversed, and then reinstated in late December. The US Supreme Court issued a stay on the injunction in late January 2025, but a separate injunction in early January 2025 continued to block CTA enforcement.[8]

This had a significant effect on the business world, as company owners and professionals were unsure whether reporting requirements would be enforced or not. Some companies filed regardless of an existing injunction, while others waited for a final ruling before reporting.

Continuing resistance to the CTA, as effectuated by multiple legal challenges, seemed to draw the attention of the incoming Trump administration, which in its pervious term, focused on deregulation.

The voices of businesses owners and other challengers were heard, as reflected by guidance provided by the Financial Crimes Enforcement Network (“FinCEN”) on February 27, 2025, that penalties would not be enforced until an interim final rule was issued.[9] On March 2, the Treasury Department announced a suspension of the CTA against domestic companies and persons.[10] On March 26, the interim final rule was published on the federal register.[11]

The Treasury Department circumvented CTA enforcement in a creative way: by removing reporting requirements for domestic companies, while continuing enforcement against certain foreign companies.

While the intent of the CTA is admirable, the burden on businesses as a whole was burdensome and invasive. This welcomed change provides relief to millions of Americans attempting to form companies and start businesses.