The Corporate Transparency Act (CTA) was passed in 2021, and its filing requirements were implemented in 2024. Supporters of the CTA cite its use in combating money laundering, trafficking, tax evasion, other criminal activity, and for national security. Opponents say it is intrusive, burdensome, carries excessive penalties, and is an impermissible overreach by the federal government.
As these issues come to a head, recent developments continue to leave the CTA in limbo. Since its passage, several challenges to the law have reached the courts, with varying results. As with all cases, the way the opponents frame the issues affects the way courts address them. While the plaintiffs have raised various constitutional arguments, at the forefront is whether Congress may make such a regulation pursuant to its powers under the Commerce Clause.
Additionally, the Treasury Department has issued an interim final rule that significantly relaxes reporting requirements and the penalties for noncompliance.
Cases Holding the CTA Unconstitutional
In March 2024, an Alabama federal court held the CTA unconstitutional, saying that it exceeds constitutional limits on Congress because it lacks a sufficient nexus to an enumerated power. Corporate entities are creatures of state law, and Congress may not regulate them under the commerce power just because some of them use the channels and instrumentalities of commerce. The CTA does not actually regulate economic or commercial activity; rather it regulates entities simply for existing. Additionally, the court held that the tie between the required information and Congress’s taxing power is too weak to justify the CTA. An appeal is being filed.1
Last December, a Texas federal court also held that the CTA does not fall under Congress’s power and granted a preliminary injunction, holding that entities are created under state law, and may not be monitored by Congress under the CTA. The court noted that anonymity is a feature of corporate formation as designed by the laws of various states. The court issued a nationwide injunction2 and denied a motion to stay the injunction pending appeal.3 The Fifth Circuit granted the government’s motion to stay the injunction4 and then vacated the stay pending an expedited appeal to the merits panel.5 The U.S. Supreme Court stayed the injunction pending the appeal in the Fifth Circuit and disposition of a writ of certiorari to the Supreme Court.6 The net result is that the injunction is not in place.
While the injunction was being kicked around, a Texas federal court decided Smith v. United States Dep’t of the Treasury.7 One plaintiff formed an LLC to own and operate a single rental property. Another formed an LLC to own and operate a single office building. Neither owned any interstate or foreign assets nor engaged in interstate commerce. The court held that the CTA is beyond the scope of Congress’ power to regulate commerce, not a necessary and proper exercise of the taxing or foreign affairs powers. The court stayed effective date of the reporting rule pending review. This stay applies only to the plaintiffs in the case.
On March 3, 2025, a Michigan federal court held the CTA unconstitutional on other grounds—an unreasonable search violating the Fourth Amendment—and enjoined its enforcement against the plaintiff and its members.8
Cases Upholding the CTA
Not all courts have reached the same conclusion. In September, an Oregon federal court denied a motion for a preliminary injunction, holding that the CTA is within Congress’s power. An appeal is anticipated.9 The same court denied a motion for an injunction pending appeal, citing a lack of evidence of the likelihood of irreparable injury.10
In October, a Virginia federal court held that the CTA is within Congress’s power because it regulates activity that has a substantial effect on interstate commerce. In the court’s view, the CTA does not regulate entity formation, but entities’ conduct, and is a necessary means of preventing and regulating money laundering and other illicit financial activities. An appeal is being filed.11
A Maine federal court has also recently held that the CTA is a valid exercise of congressional power.12
Is the CTA on a collision course? Perhaps. But the Treasury Department may have played an UNO reverse card.
Suspension of Enforcement
While all this was going on, on March 2, 2025, the Treasury Department announced that it would not enforce any penalties or fines, and that no penalties or fines would be enforced against U.S. citizens or domestic reporting companies even after the final rule takes effect.
Financial Crimes Enforcement Network (FinCEN) issued an interim final rule on March 21, suspending reporting requirements for domestic reporting companies. Only foreign reporting companies (now simply, “reporting companies”) are required to report beneficial ownership information (BOI), and their deadline has been extended. Additionally, reporting companies do not have to report the BOI of any U.S. persons who are beneficial owners. The rule is expected to become final this year.
What Now?
Domestic entities and U.S. persons who are beneficial owners of foreign reporting companies are exempt from reporting requirements, at least for now. Foreign reporting companies must file and update their reports within 30 days from the date of the rule’s publication, or 30 days after registering to do business in the U.S., whichever is later.
The CTA could always be modified or replaced by Congress with a version more likely to pass constitutional muster in the courts. Likewise, the Treasury Department may change the rules again.
After passage of the CTA, some contracts may now include reporting requirements. Depending on how these terms were drafted, reporting may or may not be required by the terms of the contract, even if the law no longer requires it. Entities should review their contracts carefully to see what reporting, if any, is contractually required.
The rule is silent about what happens to information already submitted to FinCEN.
Nothing from TRERC should be considered legal advice. For advice or representation on a specific situation, consult an attorney.
Cases Cited In This Article
1Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024), filing appeal.
2Tex. Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024)
3Tex. Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 5145951 (E.D. Tex. Dec. 17, 2024)
4Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5203138 (5th Cir. Dec. 23, 2024)
5Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5224138 (5th Cir. Dec. 26, 2024)
6McHenry v. Tex. Top Cop Shop, Inc., 145 S. Ct. 1 (2025)
7Smith v. United States Dep’t of the Treasury, No. 6:24-CV-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025)
8Small Bus. Ass’n of Michigan v. Yellen, No. 1:24-CV-314, 2025 WL 704287 (W.D. Mich. Mar. 3, 2025)
9Firestone v. Yellen, No. 3:24-CV-1034-SI, 2024 WL 4250192 (D. Or. Sept. 20, 2024)
10Firestone v. Yellen, No. 3:24-CV-1034-SI, 2024 WL 5159198 (D. Or. Dec. 18, 2024)
11Cmty. Associations Inst. v. Yellen, No. 1:24-CV-1597 (MSN/LRV), 2024 WL 4571412 (E.D. Va. Oct. 24, 2024), filing appeal
12Boyle v. Bessent, No. 2:24-CV-00081-SDN, 2025 WL 509519 (D. Me. Feb. 14, 2025)
