Corporate Transparency Act NARROWED – FinCEN Eliminates Reporting Obligations for All U.S. Persons and U.S. Entities

Alert
By Heyward Armstrong and Davis Fussell

As we noted in our most recent client alert, on February 27, 2025, the Financial Crimes Enforcement Network ("FinCEN") announced that it would halt all enforcement of the Corporate Transparency Act (the "CTA") and issue an interim final rule (the "Interim Final Rule") no later than March 21, 2025, further extending the deadlines for reporting companies (as defined in the CTA) to file beneficial ownership information ("BOI") reports. Concurrently, FinCEN also announced that it intended to propose new rules later this year to minimize the CTA’s burden on small businesses; ensure that BOI collected under the CTA is "highly useful to important national security, intelligence, and law enforcement activities"; and include potential further modifications to the CTA’s reporting deadlines.

On the heels of FinCEN’s February 27, 2025 announcement, on March 2, 2025, the U.S. Treasury Department announced that it was suspending the enforcement of the CTA against U.S. citizens, domestic reporting companies and beneficial owners of domestic reporting companies, including under the as-extended deadlines (once available), and would be issuing a proposed rulemaking to narrow the scope of the CTA to foreign reporting companies only.

On March 21, 2025, FinCEN (a bureau of the U.S. Department) significantly narrowed the scope of the CTA by issuing the Interim Final Rule, which became effective on March 26, 2025, upon publication in the Federal Register. As clarified by FinCEN’s Interim Final Rule frequently asked questions guidance, the Interim Final Rule provides broad relief from the reporting obligations under the CTA, as follows:

  • U.S. entities: Entities created in the United States (i.e., entities formed under the laws of a State or Indian tribe) are no longer considered reporting companies under the CTA and do not need to report BOI to FinCEN under the CTA, even if they have non-U.S. persons as beneficial owners.
  • Foreign entities: Foreign entities that are registered to do business in the United States by the filing of a document with a secretary of state or similar office are the only entities that are subject to BOI reporting under the CTA.
  • U.S. persons: U.S. persons are exempt from reporting altogether, even if they are beneficial owners in a foreign entity registered to do business in the United States.
  • Beneficial owners: The definition of "beneficial owners" has remained the same but now effectively only applies to non-U.S. persons.
  • Foreign pooled investment vehicles ("PIVs"): Because U.S. persons are exempt from reporting:
    • If the only individuals who exercise substantial control over a foreign PIV are U.S. persons, the foreign PIV is not required to report any BOI to FinCEN under the CTA.
    • If any individuals who are not U.S. persons exercise substantial control over a foreign PIV, the foreign PIV must report to FinCEN the BOI of the non-U.S. person who has the greatest authority over the strategic management of the foreign PIV.
  • Filing deadlines:
    • Existing reporting companies: Any foreign entity that became a reporting company before March 26, 2025, has until April 25, 2025, to file its initial BOI report.
    • New reporting companies: Foreign entities that become reporting companies on or after March 26, 2025, have 30 days from the date the applicable secretary of state or similar office first provides public notice that the foreign entity is registered to do business.

As a result of the actions and statements by the U.S. Treasury Department and FinCEN, the CTA currently does not apply to any U.S. persons or entities and only applies to a limited subset of foreign entities and their foreign beneficial owners. FinCEN is accepting comments on the Interim Final Rule until May 27, 2025, and intends to issue a final rule later this year. The final rule may further change the scope of the CTA to U.S. and foreign persons and entities. In addition, significant litigation continues against the CTA, which may result in the CTA being invalidated or in the re-issuance of one or more nationwide injunctions.

The Interim Final Rule provides welcome relief for many entities and individuals from the CTA’s requirements. Given the uncertainty regarding the CTA, entities (including those that were reporting companies prior to the effectiveness of the Interim Final Rule) should continue to stay abreast of developments in connection with the CTA. However, most entities may now suspend (if they have not already) their CTA compliance and reporting activities.

Smith Anderson will continue to monitor developments in this area and provide updates as they become available. As always, if you have any questions regarding the CTA, please do not hesitate to contact a member of the Corporate & Transactional group or your regular Smith Anderson lawyer.

Prior CTA Client Alerts:

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