Understanding the Corporate Transparency Act and Its Current Pause

Home » News

Understanding the Corporate Transparency Act and Its Current Pause
 
by MRC NEWS                                                                                                                                                                                                                                                              The Corporate Transparency Act (CTA), enacted in 2021 as part of the National Defense Authorization Act, aims to combat illicit financial activities, including money laundering and terrorist financing, by increasing corporate transparency. The law mandates certain U.S. entities to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). However, the enforcement of the CTA has recently faced significant legal challenges.                                                                                                                                                                                                On December 3, 2024, a federal judge in Texas issued a nationwide preliminary injunction halting the implementation of the CTA and its reporting requirements. This decision, based on claims that the law imposes unconstitutional burdens on small businesses, came just weeks before the January 1, 2025, compliance deadline. While this injunction temporarily relieves businesses of reporting obligations, the U.S. government has appealed the ruling to the Fifth Circuit Court of Appeals to reinstate the law.

The CTA remains a focal point in discussions about balancing regulatory oversight with the operational realities of businesses, particularly smaller entities. The current legal pause presents an opportunity for companies to prepare for potential compliance requirements and evaluate the implications of beneficial ownership reporting.

Implications for Businesses

If enforced, the CTA would require corporations, limited liability companies, and similar entities to disclose information about their beneficial owners, defined as individuals owning at least 25% of the entity or exerting substantial control. This reporting is intended to deter anonymous shell companies often used for illicit financial activities.

What Businesses Should Know

  1. Compliance Requirements: Businesses classified as “reporting companies” under the CTA must provide detailed BOI, including names, dates of birth, addresses, and identifying numbers for each beneficial owner.
  2. Penalties for Non-Compliance: Failure to comply with the CTA’s provisions may result in fines or criminal penalties once enforcement begins.
  3. Ongoing Developments: Companies should monitor updates on the appeals process and FinCEN’s guidance to prepare for possible future enforcement.

Resources for Businesses

The U.S. Chamber of Commerce provides their full guide on how to file your Beneficial Ownership Information Report    Additionally, FinCEN’s website remains a central hub for updates on BOI reporting rules and implementation phases.

 

Contact Us

Contact Us

Don’t see what you are looking for or have a question? MRC can help. Contact us today!