Trump Signals Regulatory Move Against Corporate Transparency Act

After years of uncertainty surrounding a requirement for tens of millions of companies to report their beneficial ownership, tax practitioners now are waiting to see how severely the Treasury Department will narrow the rule.

Treasury on Sunday said that it plans to issue new proposed rules for the Corporate Transparency Act, a law that requires companies to report their beneficial owners to Treasury’s Financial Crimes Enforcement Network bureau with a goal of combating money laundering and terrorism. Treasury will put out an interim final rule in the meantime before the current March 21 reporting deadline and has suspended penalties for missing the deadline.

The incoming rules might be the first from the new administration’s Treasury. President Donald Trump issued a regulatory freeze when he took office—a common move for presidents—which prevented federal agencies from issuing or proposing any rules until Trump’s appointments reviewed and approved them. The administration also largely opposes federal regulations.

“They still have to have rules since there was legislative action,” said Justin Miller, partner and national director of wealth planning at Evercore Wealth Management. “They need rules, but they could change those final rules.”

Limiting Reporting Rules

Treasury in its statement said the incoming reporting rules would only affect foreign-reporting companies, which would gut the number of companies affected by the law, said Jonathan Wilson, a partner at Taylor English Duma LLP and co-founder of FinCEN Report.

Foreign-reporting companies are those that formed in another country but register to do business in the US. Companies typically form US subsidiaries to do business domestically, but those subsidiaries are considered domestic-reporting companies, which Treasury said will be exempt.

Tax practitioners are still telling their clients to take a wait-and-see approach. If Treasury sticks to foreign-reporting company scope, the vast majority of the 32 million businesses FinCEN initially estimated are affected by the rules won’t have to report beneficial ownership information.

“It will be important to see if they make this very narrow or if there would be a way that captures foreign individuals running domestic companies,” said Angela Gamalski, partner at Honigman LLP and chair of the firm’s CTA task force.

There are less drastic ways Treasury could narrow the scope of the law to be less burdensome for small businesses, Wilson said. For example, the agency could remove the requirement in the rules to include a photocopy of the owners’ driver’s licenses or change the 30-day rule for updating ownership information if it changes.

“If the administration had wanted to lighten the burden on small businesses, there were lots of less dramatic means they could adopt,” Wilson said.

Hoping for Clarity

Tax practitioners hope the new rules will provide some certainty for companies after years of back and forth on whether the Corporate Transparency Act requirements would take effect and legal challenges.

Half a dozen major suits making their way through the courts challenge the constitutionality of the law. And GOP lawmakers have introduced bills to delay the beneficial reporting requirements.

“We’re generally taking the position to hang tight and see how this goes,” said Zachary Taylor, a Stinson LLP associate.