The Uncertain Future of the Controversial Corporate Transparency Act

Re-Published With Permission From Construction News and Review

By Vance Walter | Senior Director of Legislative & Political Affairs, Associated Builders & Contractors

As the deadline for compliance with the Corporate Transparency Act has come and gone, millions of small business owners are likely to still face a great deal of uncertainty around their CTA compliance obligations as well as the future and legality of the act.

The CTA, enacted in 2021 as an amendment to the National Defense Authorization Act, aims to combat money laundering, terrorism financing and other crimes by mandating that millions of small businesses, including nearly every small business employer in America, report to Financial Crimes Enforcement Network certain personal information of their beneficial owners and update that information periodically throughout the life of the business.

However, the law’s extensive reporting requirements have raised significant concerns among small business advocates, who argue that the burden disproportionately falls on businesses with limited resources and legal knowledge. Unaware of their obligations and the consequences of noncompliance, including fines and even felony charges, unwitting entrepreneurs could be turned into criminals facing jail time.

In response to growing concerns about the CTA's implications for small businesses, successful legal challenges have emerged.

Legal & Constitutional Challenges
In December 2024, just a few weeks before the beneficial ownership information – or BOI – reporting deadline, the U.S. District Court of the Eastern District of Texas imposed a temporary injunction against the CTA. The ruling nullifies the January 1, 2025 reporting deadline for small businesses to file BOI reports. However, this is not the last we will hear of the ruling, as the U.S. Treasury Dept. immediately appealed the decision.

And on December 26, the merits panel of the U.S. Court of Appeals for the Fifth Circuit reinstated the nationwide preliminary injunction to block FinCEN from enforcing the CTA. This means that while this preliminary injunction remains in effect, reporting companies are not required to file their beneficial ownership information with FinCEN.

In a separate ruling earlier in 2024, a federal judge in Alabama declared the CTA unconstitutional, granting temporary exemptions only to members of the National Small Business Association. The judge found that the CTA’s reporting requirements exceed Congress’s constitutional powers, raising questions about the law’s validity and the potential violation of privacy rights guaranteed by the Fourth and Fifth amendments.

The rulings are helpful at prodding Congress to act, as they strengthen the hands of the CTA’s critics and adds to the general confusion over whether businesses need to file or not.

ABC-Supported Efforts To Delay and Reform the CTA
Small business advocates, including Associated Builders and Contractors,have supported delaying the  CTA’s enforcement to allow for additional clarity and businesses to fully understand their obligations. Legislative efforts, including inclusion of a one-year delay of BOI reporting requirements into the end-of-year continuing resolution, which may have succeeded by the time this article is published, are still underway.

The Protect Small Business and Prevent Illicit Financial Activity Act (H.R. 5119) passed the U.S. House of Representatives in a near unanimous vote last year but has remained stalled in the U.S. Senate over opposition from Senate Banking Committee Chairman Sherrod Brown (D-Ohio), who recently lost his Senate seat. Further clouding the future of the CTA, the incoming Trump administration could pause enforcement of the CTA filing deadline, as signaled by public opposition to the CTA by Linda McMahon, former Small Business Administration administrator and current Trump presidential transition chair.

Looking Ahead
In the absence of any delay or repeal of the CTA, groups like ABC are consistently encouraging their members to comply with the law. However, it is clear that there is a significant number of small businesses that will not have complied with its requirements.

According to estimates, up to 32 million existing businesses had been required to file detailed beneficial ownership information with the FinCEN by the end of 2024. During a U.S. House of Representatives hearing in July 2024, Treasury Secretary Janet Yellen confirmed that the Financial Crimes Enforcement Network has received 2.7 million reports and engaged in a “very broad outreach effort.” However, their data shows that only seven percent of companies had complied through July 2024. It is unclear how many are out of compliance as of the end of 2024.

Small business owners must stay informed and understand their ongoing obligations under the CTA. Consulting legal counsel and seeking guidance from advocacy organizations can help them navigate the complexities of the law and avoid unintended consequences.

The legal challenges and the possibility of a legislative fix signal that the future of the CTA – and its impact on small businesses – remains uncertain. However, the widespread lack of awareness among business owners about their reporting obligations highlights a pressing issue that must be addressed to protect millions of job creators