U.S. citizens, domestic entities, and their beneficial owners need not worry about penalties and fines under the Corporate Transparency Act (CTA), said the Treasury Department, which intends to narrow the reporting requirements to foreign entities.
The March 2 announcement came on the heels of a notice last week from Treasury’s Financial Crimes Enforcement Network (FinCEN) that it would be revising beneficial ownership information reporting deadlines via an interim final rule. FinCEN had said that it would not take any action to enforce the previously set March 21 reporting deadline.
While last week’s announcement indicated a pause on enforcement until the interim final rule becomes effective and a new deadline is announced, Treasury is now going a step further — it will halt enforcement actions for U.S. citizens, domestic reporting companies, and their beneficial owners even after the new deadline takes effect.
Treasury said it intends to issue a proposed rule to “narrow the scope of the rule to foreign reporting companies only.” The goal of the shift, said Treasury, is “supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”
The CTA was signed into law in 2021, and targets layered corporate structures that facilitate “illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption.” It passed with broad bipartisan support as part of the 2021 National Defense Authorization Act. (P.L. 116-283, see Sec. 6401 to 6403) Under the CTA, certain entities must report information about their beneficial owners to FinCEN.
However, many have taken issue with the CTA’s beneficial ownership reporting rule — resulting in repeated delays in the reporting deadline for most entities. Among the concerns: compliance costs, a lack of awareness of the requirements among small businesses, and hefty penalties. Lawsuits filed around the country also contend the CTA is unconstitutional.
Treasury Secretary Scott Bessent called the planned shift “a victory for common sense.” To him, it aligns with the Trump administration’s goal of “reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
A step too far? FinCEN’s decision last week to hold off on enforcement action “seems reasonable” to Morris, Manning & Martin partner Lili Martin-Mashburn. She noted “the procedural complexities and the ongoing legal proceedings regarding the constitutionality of the CTA.”
But Treasury’s latest move “limiting the CTA to foreign entities registered to do business in the U.S. creates a potential loophole, as non-U.S. parties could simply form their entities in the U.S.,” Martin-Mashburn told Checkpoint.
The narrowed scope “risks making the U.S. a haven for illicit financial activity,” said Transparency International U.S.’s Scott Greytak. “It also ensures that the United States will be found non-compliant with baseline, globally accepted anti-money laundering and counter-financing of terrorism standards,” he added.
Senate Finance Committee Ranking member Ron Wyden (D-OR) called Treasury’s decision a “gift to shadowy Russian oligarchs and money launderers.”
And FACT Coalition’s Ian Gary said the move stands in contrast to years of bipartisan work in Congress to address anonymous shell companies. “Hollowing out the Corporate Transparency Act is an unconstitutional subversion of Congress’ intent that will not survive judicial scrutiny,” said Gary.
Tax Law Center’s Chye-Ching Huang agrees. “The Administration does not have authority to permanently not enforce the law simply because it dislikes the law,” said Huang. She called Treasury’s plan to propose rules narrowing the scope of the reporting law to foreign entities “an unlawful attempt to rewrite the Corporate Transparency Act, which Congress clearly and explicitly crafted to apply to both domestic and foreign shell companies.”
Cato Institute’s Brent Skorup, however, sees a pathway for Treasury’s new position on the CTA. “[I]t appears that the agency will rely on its statutory discretion to exempt most small businesses and nonprofits from the law’s requirements,” Skorup explained.
Ongoing clarity issues. “While the ultimate result of yesterday’s announcement was not surprising, policy-wise, the timing of the announcement was perplexing,” said Melissa Wiley, a partner at Kostelanetz. She noted FinCEN’s announcement days earlier that “seemed to imply that the law was still fully operational, but that no penalties would be imposed” until a new deadline was set. “What changed in 3 days?,” asked Wiley.
And for Martin-Mashburn, “until the CTA is repealed or amended, the Treasury’s recent announcement offers limited comfort or clarity.”
Even if Treasury chooses not to enforce the CTA, the underlying statute still remains in effect. Congress has not taken action to repeal the law — though a recent House-passed bill would push the filing deadline for most entities to January 1, 2026. Court reactions to the constitutional challenges have been a mixed bag. No courts currently bar enforcement nationwide — but the CTA has been paused for plaintiffs in a suit pending in the 11th U.S. Circuit Court of Appeals.
“Other agencies are not restricted from using noncompliance as a basis for enforcement actions,” explained Martin-Mashburn. “Additionally, entities that fail to file under the CTA, while making representations of compliance with applicable laws (such as in loan documents), may risk triggering liability,” she added.
Wiley is also concerned about the information roll-out over the last several days. While reporting rule deadline changes have typically been posted to FinCEN’s BOI webpage, the February 27 announcement was a FinCEN news release, and the March 2 announcement came from Treasury.
“Indeed, someone looking on FinCEN’s website to see what the current status of the law was would not be able to get to the right answer,” said Wiley. “If the intent is to simplify things for small businesses, getting the information all in the same place would be a great place to start.”
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