The Corporate Transparency Act: What’s New (Sam McLelland Commentary)

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The Corporate Transparency Act, a federal law aimed at combating financial crimes, has faced significant legal challenges in recent weeks. Initially, a federal judge in Texas put the brakes on the CTA. However, while most of us were enjoying the holiday break, the 5th U.S. Circuit Court of Appeals issued two different opinions on the appeal of the case, creating a roller coaster of events and confusion about what to do next. If you own a small business, here is what you need to know.

The CTA was designed to combat money laundering and financial crimes. It required most privately held corporations, partnerships and LLCs to report details about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). A beneficial owner is someone who owns 25% or more of a company or has significant control over it.

The reporting rule would have gone live on Jan. 1, 2025, for businesses created before January 2024. Noncompliance came with hefty penalties, including fines and potential criminal charges. Understandably, this raised concerns among small businesses about how to navigate such a novel reporting requirement.

The challenge to the CTA came from small businesses and advocacy groups, including the National Federation of Independent Business. They argued the law went beyond Congress’ constitutional powers. Federal Judge Amos Mazzant agreed, ruling that the CTA overstepped boundaries set by the Commerce Clause and the Necessary and Proper Clause.

The judge’s reasoning was straightforward: Regulating small businesses’ ownership data is not a power the federal government can claim without significant constitutional justification. He also rejected arguments that the law was essential for foreign affairs or national security.

The past month has been particularly eventful for the CTA’s enforcement:

► Dec. 3, 2024: Mazzant issued a nationwide injunction, halting enforcement of the CTA.

► Dec. 23, 2024: A three-judge panel of the 5th Circuit Court stayed the district court’s injunction, which reinstated the CTA’s filing requirements. In response, the U.S. Treasury extended the reporting deadline to Jan. 13, 2025, to accommodate the sudden change.

► Dec. 26, 2024: The 5th Circuit’s en banc panel vacated the stay, once again halting enforcement of the CTA nationwide.

For now (again) the January 2025 reporting deadline is off the table. The injunction applies nationwide, meaning businesses across the country do not need to file ownership reports with FinCEN until further notice. This decision buys time for small businesses while the courts continue to sort out the legal issues.

However, this is not the end of the road. The U.S. Treasury could seek to stay the injunction again at the Supreme Court.

So for now, stay informed: This injunction does not mean the CTA is gone forever. Courts are still deciding its fate, and requirements could change quickly.

Be prepared: If your business would have been subject to these reporting rules, keep your ownership records up to date. Being ready to comply if the law is reinstated could save you headaches later.

Consult your lawyer: The legal landscape around the CTA is evolving, and lawyers can provide guidance tailored to your business’s situation.

Sam McLelland is a partner at PPGMR Law PLLC.