Publication

18 February 2025

Feds Continue to Seek CTA Enforcement, but with Potential Relief for “Low Risk” Entities

Earlier in February, the Department of Justice under the new Trump Administration filed a motion to lift the sole remaining nationwide injunction on Corporate Transparency Act (CTA) enforcement in Smith, et al. v. U.S. Department of the Treasury, et al.  As discussed in our prior CTA alert, the Supreme Court recently granted the Government’s application for a stay of a separate nationwide injunction on CTA enforcement in Texas Top Cop Shop, Inc., et al. v. McHenry, et al.  While the Government is now seeking to stay the Smith injunction as well, it has coupled its motion with a statement that the Treasury Department and FinCEN plan to revisit the application of the CTA to “low risk” entities (including many small businesses), suggesting a possible narrowing of CTA enforcement priorities.

To this end, FinCEN has already publicly announced, via its beneficial ownership information (BOI) reporting website, that:

If the district court’s order is stayed … FinCEN intends to extend the reporting deadline for all reporting companies by 30 days. Further, … during that 30-day period, [FinCEN] will assess its options to modify further deadlines or reporting requirements for lower-risk entities, including many U.S. small businesses, while prioritizing reporting for those entities that pose the most significant national security risks.  (emphasis added)

The Government’s request for a stay of the Smith court’s nationwide injunction was not filed on an expedited or emergency basis, and the timeframe for a ruling is unclear.  In its filing, the Government largely defended the facial Constitutionality of the CTA, even as it acknowledged that policy considerations would lead it to revisit the scope of current reporting company exemptions.  In their response to the Government’s filing, the Smith plaintiffs continued to argue that Congress exceeded its Constitutional authority in legislating the CTA.

So where does this leave us? Some views from Miller Johnson’s CTA Task Force:

  1. Because the Constitutionality of the CTA has been vigorously contested by plaintiffs filing challenges to the CTA in courts across the country, we would expect many of these challenges to continue, with plaintiffs’ strategies and judges’ rulings varying by district and/or circuit.
  2. For the time being, the Smith nationwide injunction remains in place, so CTA reporting remains voluntary.
  3. If the Smith court ultimately grants the stay requested by the Government, the plaintiffs could appeal to the Fifth Circuit Court of Appeals, which is already scheduled to hear oral arguments in the Texas Top Cop Shop case in April.
  4. It is possible that the CTA will again become enforceable during the pendency of the Fifth Circuit appeal proceedings, subject to whatever relief Treasury and FinCEN provide to would-be reporting companies.
  5. In the meantime:
    1. Treasury and FinCEN appear poised to exercise their statutory authority to promulgate additional exemptions (e.g., for low risk small businesses) to reduce the reporting burden on many legitimate operating entities.
    2. Congress may formally extend the deadline for CTA reporting under statute. For example, H.R. 736 was introduced and passed by the House (with no objection) on February 10. If approved by the Senate and enacted into law, the initial CTA reporting deadline for pre-2024 “legacy” reporting companies would be extended from January 1, 2025 to January 1, 2026.
    3. Congress could repeal the CTA altogether and/or go back to the drawing board to design a new framework for federal oversight of beneficial ownership information.
  6. More immediately, what types of entities qualify as “low risk” remains to be seen, so it is prudent for most potential reporting companies to reengage in preparations for CTA reporting, unless and until they are clearly exempted from CTA reporting.

Big picture—we can glean from the Government’s latest appeal that the Trump Administration is (at a minimum) open to enforcing the CTA to address “significant national security risks.” It does not view the CTA as entirely unenforceable on Constitutional grounds.  However, it is seeking to chart a path forward – both in litigation and regulation, and perhaps legislation – that creates an “off ramp” from CTA reporting for legitimate “low risk” entities, especially small businesses.

Miller Johnson’s CTA Task Force will continue to provide updates as they develop.