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Editorial 9 MIN READ

The CTA in February 2025: paused, reinstated, paused, reinstated, paused

Three months of whiplash on beneficial-ownership reporting, and what a new Treasury review might finally resolve

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 5 sections
  1. How we got to a pause, a resumption, a pause, a stay, and another pause
  2. What the rule actually requires, for anyone catching up
  3. The new administration's signals, such as they are
  4. What to do this quarter if you run a reporting company
  5. Sources

he Corporate Transparency Act has spent the last eleven weeks ricocheting between a federal district court in Texas, two panels of the Fifth Circuit, and the Supreme Court. As of this morning, beneficial-ownership reporting under the CTA is paused again, FinCEN is not enforcing, and the Treasury Secretary has opened a review whose outcome nobody in the compliance bar is willing to predict out loud.

Small-entity filers who have been waiting out the noise may finally get an answer this spring. It will probably not be the answer the statute's drafters wanted.

How we got to a pause, a resumption, a pause, a stay, and another pause

On December 3, 2024, Judge Amos L. Mazzant III of the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-478, enjoining FinCEN from enforcing the CTA's beneficial-ownership information (BOI) reporting rule and suspending the January 1, 2025 reporting deadline for entities formed before 2024. The ruling concluded that the plaintiffs were likely to succeed on the argument that the CTA exceeds Congress's Article I powers, and that nationwide relief was appropriate because the rule applies uniformly across the country.

FinCEN complied. The reporting portal stayed open voluntarily but enforcement stopped, and Treasury publicly acknowledged that entities were not required to file while the injunction was in place.

On December 23, 2024, a motions panel of the Fifth Circuit granted the government's emergency motion to stay the injunction pending appeal. FinCEN resumed the reporting regime within hours and issued an alert extending the reporting deadline to January 13, 2025 for most pre-2024 entities, acknowledging that filers needed time to react to the reversal.

Three days later, on December 26, 2024, a different Fifth Circuit merits panel vacated the motions panel's stay, concluding that maintaining the status quo through the appeal was the more cautious course. The injunction snapped back into force. FinCEN paused enforcement again, issued a fresh notice, and told filers that BOI reporting was once more voluntary.

The government then went straight to the Supreme Court. On January 23, 2025, the Court granted the government's application to stay Judge Mazzant's injunction pending appeal in the Fifth Circuit and any subsequent certiorari petition. The case had by then been recaptioned McHenry v. Texas Top Cop Shop, reflecting the change in Attorney General. Justice Gorsuch concurred and Justice Jackson dissented. The stay put the BOI rule back on paper.

That would have been the end of the whiplash, except for a parallel case. In Smith v. U.S. Department of the Treasury, No. 6:24-cv-336, a second Eastern District of Texas judge, Judge Jeremy Kernodle, issued a separate nationwide preliminary injunction on January 7, 2025. The Supreme Court's stay in Texas Top Cop Shop did not reach the Smith injunction, because the Smith injunction had not been before the Court. So when the Supreme Court lifted one, the other was still standing.

FinCEN responded on February 10 and again this week with notices reiterating that, while the Smith injunction remains in effect, BOI reporting is not mandatory and no penalties will be pursued for filers who do not submit during the injunction period. Voluntary filing is still accepted.

That is where the record stands on the morning of February 18, 2025: the statute is on the books, the rule is on paper, two federal courts have said the rule cannot be enforced against anyone, the Supreme Court has stayed one of those orders but not the other, and Treasury is not collecting filings.

What the rule actually requires, for anyone catching up

The Corporate Transparency Act, enacted as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Pub. L. No. 116-283, div. F) and codified at 31 U.S.C. § 5336, directs FinCEN to collect beneficial-ownership information from most U.S. corporations, LLCs, and similar state-registered entities, plus their foreign-registered counterparts doing business in the United States. FinCEN's implementing rule, published at 31 C.F.R. § 1010.380 and finalized in September 2022, requires each reporting company to identify every individual who either owns 25 percent or more of the entity or exercises substantial control over it, and to submit that person's full legal name, date of birth, residential address, and an image of an unexpired government-issued ID.

Entities formed before January 1, 2024 were originally given until January 1, 2025 to file an initial report. Entities formed during 2024 had 90 days. Entities formed on or after January 1, 2025 have 30 days. Updates must be filed within 30 days of any change to the reported information. Willful violations carry civil penalties of up to $591 per day (adjusted annually from the statutory $500 base) and criminal penalties of up to two years' imprisonment.

The statute exempts 23 categories of entity, most of them already regulated (banks, brokers, public companies, insurance companies, certain large operating companies with more than 20 full-time U.S. employees and more than $5 million in U.S. gross receipts, and so on). FinCEN estimated in its regulatory impact analysis that roughly 32 million existing entities would need to file in the first year alone.

The policy logic is straightforward and not seriously contested. The U.S. has been, for two decades, the easiest G-7 jurisdiction in which to form an anonymous shell company. FinCEN collects BOI precisely because state incorporation offices do not. The constitutional objection, which is what both Texas courts accepted, is that Congress reached this activity through the Commerce Clause and the Necessary and Proper Clause without the traditional interstate-commerce hook; forming a Wyoming LLC to hold a rental property is not itself commerce. Whether that objection holds up on appeal is a real question and not a rhetorical one.

The new administration's signals, such as they are

Treasury Secretary Scott Bessent was sworn in on January 28, 2025. Within two weeks, Treasury issued a statement indicating that the department was reviewing the BOI reporting framework in light of ongoing litigation, the compliance burden on small businesses, and the new administration's broader deregulatory posture. No formal rulemaking notice has been published in the Federal Register as of this dateline.

Three paths are plausible and only one is clean.

The cleanest path is a statutory amendment. Representative Warren Davidson introduced H.R. 8147, the Repealing Big Brother Overreach Act, in the 118th Congress; a companion bill is expected to be reintroduced in the 119th. A straight repeal moves the question out of the courts entirely and resolves the constitutional issue by mooting it. The political math is not obviously there; Republican leadership has been split on the CTA, with national-security hawks on one side and small-business caucuses on the other. A narrower amendment raising the employee and revenue thresholds of the large-operating-company exemption would accomplish most of the deregulatory goal while keeping the anti-shell-company frame intact.

The second path is administrative: Treasury withdraws or substantially rewrites 31 C.F.R. § 1010.380 through notice-and-comment rulemaking under 5 U.S.C. § 553. The rule, as written, does not have to collect residential addresses or require annual updating of passport images. A leaner rule could survive constitutional scrutiny and satisfy the practical compliance complaint without abandoning the underlying registry. The timeline for notice-and-comment is at least six months if Treasury wants a clean record, and probably longer if the proposed rule draws the kind of comment volume the original did.

The third path is enforcement discretion. FinCEN simply continues issuing notices saying it is not enforcing, and entities continue not filing. This is the path of least resistance and the most fragile. A future administration can reverse course with a single notice. The statute's clock keeps running, and entities that did not file during the non-enforcement window are technically in violation of a still-effective statute. Nothing about the Smith injunction, or the Supreme Court's stay in Texas Top Cop Shop, changes the underlying statutory obligation; the injunction merely blocks enforcement of the rule that implements it.

What to do this quarter if you run a reporting company

Voluntary filing is still accepted. For a single-entity small business with a stable ownership structure, filing takes under twenty minutes and produces a FinCEN identifier that simplifies any future updates. The cost of voluntary compliance is low; the cost of being wrong about which way Treasury lands is a daily civil penalty accruing from the date the enforcement pause ends.

For a more complex structure, a holding company with layered ownership, a trust in the stack, or a fund with LP-GP arrangements, waiting makes more sense. The definitions of "substantial control" and "beneficial owner" are where most of the compliance cost lives, and those definitions are the most likely targets of any Treasury rewrite. Filing now means refiling later if the rule changes materially.

The timing question is narrow. The Fifth Circuit is expected to hear argument on the merits of the Texas Top Cop Shop appeal in late March or April 2025. The Eleventh Circuit has had National Small Business United v. Yellen (the Alabama case that found the CTA unconstitutional in March 2024) under submission since September; a decision there has been expected for some time and would create a circuit split if it affirms. A split puts the question on a fast track to cert. If the Fifth Circuit reverses Judge Mazzant and the Eleventh Circuit reverses the Alabama district court, the Smith injunction is the last piece standing, and it is already being appealed.

Anyone who filed a complete BOI report before December 3 should leave it filed and move on. Anyone who has not filed and does not plan to file voluntarily should keep a calendar note for the first week of May, when the shape of the Fifth Circuit argument will be clearer, and watch for any Federal Register notice from FinCEN earlier. If you formed a new entity this year, your 30-day clock is frozen for now, but freezing is not the same as expiring; keep the paperwork ready.

If you are relying on enforcement discretion as your compliance strategy, write down the date you made that decision and the notice you relied on. The record matters if the rule snaps back and a penalty assessment follows.

The one thing the last eleven weeks have made clear is that the CTA, as written and implemented, is not going to exist in its current form for much longer. Whether that is because a court strikes it, Treasury rewrites it, or Congress amends it is the only real open question, and the answer is probably a mix of all three.

Sources

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