US Court Halts New Small-Business Treasury Reporting Rule

The U.S. Department of the Treasury in Washington on Oct. 3, 2024. Madalina Vasiliu/The Epoch Times

A new Treasury Department reporting rule that would have fined small businesses for noncompliance has been halted by a U.S. court.

The Treasury Financial Crimes Enforcement Network, also known as FinCEN, said it will comply with a U.S. court-imposed injunction, halting enforcement of the rule. In the meantime, it confirmed that companies may voluntarily submit the information requested in the latest regulatory measure.

The Corporate Transparency Act (CTA), legislation passed in 2021 to crack down on anonymous shell companies for illicit purposes that forced small businesses to report their beneficial owners’ information, has faced various legal hurdles over the past year. This includes recent litigation in Texas that no longer requires small businesses to comply with the federal rule.

A U.S. District Texas judge issued the nationwide preliminary injunction against the federal government’s enforcement of the CTA and its regulations last week. The court concluded that the CTA’s reporting rule was unconstitutional.

“The CTA … is hereby enjoined. Enforcement of the Reporting Rule ... is also hereby enjoined, and the compliance deadline is stayed. ... Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court,” the Court’s order stated, referring to reporting of beneficial ownership information.

FinCEN said in a statement to The Epoch Times: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Although the judge’s ruling temporarily pauses enforcement, the CTA’s provisions could be resumed if the court’s order is reversed, according to experts at the U.S. Chamber of Commerce.

“The preliminary relief will remain in effect until the conclusion of legal proceedings, at which point the court may enter a permanent injunction. In the meantime, the government will likely appeal the preliminary injunction,” the group wrote.

“Unless and until an appellate court overrules or narrows the injunction, no businesses are obligated to comply with the reporting requirements.”

What You Need to Know About the CTA

In 2021, Congress passed the Corporate Transparency Act (CTA), aimed to curb tax evasion, terrorist financing, or money laundering. The law mandates businesses operating in the United States to report their beneficial owners to FinCEN as part of broader efforts to prevent illegal financial activity and bolster transparency.

“Having a centralized database of beneficial ownership information will eliminate critical vulnerabilities in our financial system and allow us to tackle the scourge of illicit finance enabled by opaque corporate structures,” Treasury Secretary Janet Yellen said in a statement.

Before the court’s decision, small businesses would have been required to submit personal information about their beneficial owners, including name, address, birth date, and other information from a piece of identification such as a driver’s license.

Estimates suggested that the new reporting requirement would have applied to approximately 32 million businesses, including corporations and limited liability companies.

Twenty-three types of entities, such as public utilities, banks, and insurance companies, were exempt from the CTA. In addition, companies with more than $5 million in gross sales and 20 or more full-time employees would not have been required to file documentation with FinCEN.

Prior to the latest litigious update, companies that existed before 2024 would have had until Jan. 1, 2025, to submit an initial Beneficial Ownership Information Report. Businesses created in 2024 were given 90 calendar days from their effective date of creation to file. Businesses formed in 2025 were provided with 30 days.

Failure to comply would have come with sizable penalties.

Businesses and their owners would have faced civil penalties of up to $591 for each day they did not file. They could have also endured $10,000 in criminal fines and faced up to two years in prison if regulators found that businesses submitted false information or willfully did not file, correct, or update beneficial ownership information reports.

The numbers showed that despite the potential financial punishments, a majority of affected businesses did not file these reports with the U.S. government.

The latest FinCEN filing data suggested that the national compliance rate ranges between 3.2 percent (West Virginia) and 24.3 percent (Wyoming).

This would have been enough to encourage federal regulators to hit the pause button on implementation, says the S-Corporation Association of America, a business trade association.

“It’s the inevitable consequence of a sweeping new reporting regime that no one has heard about,” the group said in an October report. “It also highlights the need to pause enforcement of the CTA for a year at the very least.”