Corporate Transparency Deadline Set, but Uncertainty Still Looms

US businesses preparing to disclose their beneficial ownership information to the government under its new March 21 deadline to enforce the Corporate Transparency Act could see the compliance date pushed back again.

That deadline is when most businesses must file reports identifying who owns or controls their company, directly or indirectly, to the Financial Crimes Enforcement Network. The bureau set the deadline late on Feb. 18 after a court lifted the last remaining nationwide block against the Corporate Transparency Act. Legal challenges repeatedly thwarted the law’s implementation, which had been scheduled to take effect on Jan. 1, 2025.

FinCEN, which sits within the Treasury Department, said in its announcement that it would consider further modifications to the deadline and possibly shrink the pool of companies required to file reports. Finer details about those changes will determine the path forward for a swath of small businesses that haven’t yet made their disclosures, said Jennifer L. Horowitz, chair of Cole Schotz PC’s corporate transactions department.

Future delays and exceptions for low-priority businesses “would be beneficial for everyone involved, including FinCEN, which seems to want more time even within its own self-made deadline,” Horowitz said. “I do think it would behoove everyone to analyze which entities are, in fact, appropriate filing entities, and in which time frame,” Horowitz said.

Politics are also at play, said Bill Kambas, a partner on Withersworldwide’s US private client and tax team. The battle over these reporting requirements has spanned multiple presidential administrations and spurred Republican opposition in Congress and some US states. Congress may yet act to push the deadline until next year.

The CTA’s supporters say the law is designed to combat money laundering, tax evasion, terrorism financing, and other illicit financial schemes by cracking down on the anonymous shell companies used to facilitate those crimes. The law faced pushback in the courts from businesses that called its requirements onerous, over-broad, and in excess of Congress’s constitutional authority over interstate commerce.

According to the announcement, FinCEN will revise its disclosure rule to “reduce burden for lower-risk entities, including many US small businesses,” while prioritizing entities that pose the most significant threats to national security. A FinCEN spokesperson declined to comment on when those revisions would be announced.

Politics, Practical Hurdles

The Corporate Transparency Act became law in early 2021 as part of that year’s National Defense Authorization Act, which passed Congress over then-President Donald Trump’s veto. Government lawyers for the second Trump administration are now defending the law in court, in continuity with the Biden administration’s earlier position.

“It’s interesting to see that the new administration has maintained support for defending the CTA,” given opposition from other Republican officials, Kambas said. Senators Jim Risch (R-Idaho) and Tommy Tuberville (R-Ala.) introduced a bill to repeal the law entirely and attorneys general from several Republican-led states on Jan. 9 opposed the Biden administration’s push to stay a nationwide injunction against the law.

The US House of Representatives passed a bill 408-0 on Feb. 10 to further extend the CTA’s reporting deadline to January 2026. The Senate hasn’t yet passed the measure, which was introduced by Senate Banking Committee Chairman Sen. Tim Scott (R-S.C.).

“I suspect that pushing the deadline is just kicking the can down the road,” Kambas said. “This is not the end of the story.”

FinCEN also faces practical challenges ahead of the March 21 deadline, considering the run up to previous CTA deadlines saw their electronic filing portal break down due to user traffic, Horowitz said.

The Treasury Department estimated in 2022 that about 32.6 million entities would be obligated to file BOI reports, but that figure remains fluid as new companies continue to form.

Growing Frustration

Some businesses are done waiting. FinCEN was accepting companies’ beneficial ownership information reports on a voluntary basis during the period when the CTA and its implementing regulations were held up in court. Horowitz said some of her clients preferred not to file out of confidentiality concerns, but Kambas said many of his were so far along in preparing their reports that they opted to file, even when not legally required.

“The list of clients who had not prepared has gotten smaller and many of my clients undertook the organizational responsibilities even before submitting filings,” Kambas said. “It’s not like they’re starting from scratch with only 30 days. I think 30 days is workable.”

Another curve ball from the federal courts also remains possible. The first nationwide injunction against the CTA’s enforcement came just weeks before its original deadline, causing whiplash throughout compliance offices late last year.

District courts so far have been split on the question of whether Congress overstepped in passing the CTA. A federal court in Maine upheld the law Feb. 17, and judges in Virginia, Michigan, and Oregon all declined requests for preliminary injunctions. But federal courts in Alabama and Texas granted injunctions, with the Texas court choosing to halt enforcement nationwide.

“The frustration is our clients are trying to do the right thing. Our clients are law-abiding business owners and investors,” Kambas said. “But the back and forth is confusing.”

Cases about the CTA are ongoing in the US Courts of Appeal for the Fourth, Fifth, and Eleventh circuits. The Fifth Circuit is scheduled to hear oral arguments concerning the now-stayed nationwide injunction April 1.