U.S. businesses no longer have to comply with the beneficial ownership information (BOI) reporting filing requirements of the Corporate Transparency Act (CTA). That’s the result of an interim final rule issued this month that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). If finalized, the rule would exempt more than 99% of entities from reporting.
(I know—”interim” and “final” don’t feel like they should be next to each other when the rule is not yet final. An interim final rule is one that’s issued without first issuing a notice of proposed rulemaking and accepting public comments. It sets out new regulatory requirements together with an effective date.)
This is consistent with a policy change that was first announced on social media by the Treasury Department, followed by a press release posted on its website and a Truth Social post by President Donald Trump celebrating the end of enforcement of what he branded an “outrageous and invasive” requirement.
The rule revises the definition of “reporting company” to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also specifically added domestic companies—those entities formed in the U.S.—to the list of exempted entities.
Previously, reporting requirements applied to businesses created in the U.S. and foreign companies registered to do business in any U.S. state or Indian tribe.
The rule also exempts foreign reporting companies and their U.S. person beneficial owners from having to provide information about any U.S. persons who are beneficial owners of the foreign reporting company. Foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirement to report any beneficial owners.
Foreign entities that are reporting companies must file within 30 days of the interim rule’s publication if they were registered before that date. Reporting companies registered to do business in the U.S. on or after the rule’s publication have 30 calendar days to file an initial BOI report after they receive notice that their registration is effective.
The new rule will dramatically reduce the number of companies required to report. Under the law as written and passed by Congress, approximately 32 million companies were subject to the CTA in 2024, the first year the law was in effect. Now, however, under the most recent application by the Treasury, the number of businesses impacted by the new rule is estimated to be 11,667 reporting companies per year, on average (this assumes reporting companies—around 20,000—that did not already file a report would file in year one and approximately 5,000 new reporting companies would file their first report in each of the first three years).
Background
Congress passed the CTA after years of discussion over the problems created by anonymous shell companies, including money laundering and drug trafficking. It was part of the National Defense Authorization Act for Fiscal Year 2021. Then President Trump vetoed that law for unrelated reasons, and Congress overrode his veto in January of 2021 before President Joe Biden took office. The Department of the Treasury officially began accepting beneficial ownership information (BOI) reports on January 1, 2024.
Previously, reporting companies included domestic companies created under the laws of a state or Indian tribe or entities formed under the law of a foreign country registered to do business in any state or tribal jurisdiction. This can include limited partnerships, limited liability partnerships (LLPs), business trusts, LLCs (including SMLLCs), and corporations—typically, any entity you would register with the state.
There are several exemptions—23 types of entities are exempt from the reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies.
The penalties for failing to comply are harsh. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000.
According to the language in the rule, the Treasury Secretary has determined that reporting by domestic reporting companies and their beneficial owners “would not serve the public interest” and “would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.”
This seems to run counter to a finding in the preamble to the Reporting Rule, which noted that Treasury’s 2022 National Money Laundering Risk Assessments identified a lack of timely access to beneficial ownership information as a key weakness in anti-money laundering efforts and countering the financing of terrorism. Now, Treasury has concluded that foreign reporting companies “present heightened national security and illicit finance risks, along with distinct concerns regarding regulatory burdens.”
Court Rulings
Months after the CTA went into effect in 2024, a federal court found it unconstitutional. The ruling resulted from a lawsuit filed by the National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles. On March 1, 2024, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional “because it exceeds the Constitution’s limits on Congress’ power.”
Since then, multiple actions have been filed in courts across the country—including to the Supreme Court—seeking to declare the rule unconstitutional. Just before the Treasury’s most recent announcement, a court in the Eastern District of Texas ruled that beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are back in effect. As a result, FinCEN extended the deadline for most reporting companies until March 21, 2025—that was before the new rule.
Deadline Confusion and Public Comment
Under existing regulations, reporting companies and their beneficial owners were required to comply with the BOI reporting requirements by January 1, 2025. However, due to ongoing legal challenges, FinCEN had extended the deadline to March 21, 2025—the same day the interim rule was introduced.
Treasury noted that FinCEN determined that the “most appropriate mechanism to provide for the exemptions” pending a final rule and to “avoid imposing immediate compliance costs on domestic reporting companies and U.S. persons in contradiction to the rule’s purpose, and to minimize and expeditiously resolve this period of confusion, while still allowing for public participation” is to issue an interim final rule and allow 60 days for public comment.
That means that FinCEN wants to hear from you. The agency is accepting comments and intends to finalize the rule this year.
Reactions And Potential Consequences
The Financial Accountability and Corporate Transparency (FACT) Coalition, a non-partisan alliance of more than 100 state, national, and international organizations, was clearly disappointed in the revised rule. Executive director Ian Gary noted in a statement, “Treasury’s proposal contradicts decades of evidence that sanctions evaders, tax cheats, and fentanyl traffickers rely on anonymous U.S. companies to stash their illicit cash in the U.S. financial system. This decision is tantamount to nullifying the statute and is very unlikely to be upheld in court.”
The FACT Coalition also noted that the U.S. will soon undergo another evaluation by the Financial Action Task Force (FATF), the international anti-money laundering standard-setting body. The U.S. was upgraded to largely compliant in 2024 based on, among other things, the implementation of the CTA. According to the FACT Coalition, backtracking on what entities are covered risks U.S. censure, including “grey-listing” by FATF.
Nelson Bunn, Executive Director of the National District Attorneys Association, suggested the original rule had broad support, saying, “District attorneys around the country strongly support the Corporate Transparency Act as an indispensable tool for combating the fentanyl epidemic, transnational crime, terrorism financing, and other illicit activities. Access to beneficial ownership information is a necessity for prosecuting crimes. Treasury’s interim final rule threatens to deny law enforcement the vital information they need to pursue illegitimate business fronts that jeopardize U.S. national security and public safety. If finalized without amending, this proposal will undermine Congress’s intent and stunt efforts to achieve justice across the nation.”
You can find the interim rule here.
Read the full article here
