One of our regular columnists and expert on legal matters writes about new developments affecting the Corporate Transparency Act, a piece of legislation that became law little over a year ago and which was intended to significantly increase disclosure of beneficial ownership information to the authorities.

This news service has covered an important piece of beneficial ownership (BO) legislation enacted in the US and taking force from January 2024 – the Corporate Transparency Act. Like other jurisdictions, the issue of how BO data is collected and, where needed, accessed by law enforcement, the media and others, is a difficult one. It is politically controversial, given the arguments about balancing legitimate financial privacy against the need to crack down on illicit money. There are also parallel concerns about how organizations such as the IRS allegedly use technology to pursue alleged tax dodgers, and whether using AI and other tools breaches important principles of law.

Matthew Erskine
 
In this article, Matthew Erskine (pictured above), a regular writer for Family Wealth Report, and member of this news service’s editorial board, looks at the latest developments that affect the CTA now that a new US administration is in office. Erskine is a managing partner of his law firm, Erskine & Erskine. We thank him for this expert analysis of an important and complex matter. (He also wrote about the CTA in January 2024.) The usual editorial disclaimers apply. These articles are meant to stimulate discussion, so we urge readers to comment and provide feedback. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The Corporate Transparency Act (CTA) has had significant legal challenges and court decisions since its implementation. The act has faced scrutiny, especially concerning its requirements for beneficial ownership information (BOI) and reporting companies have been whipsawed between the filing requirements being enforced and the filing requirements being suspended due to a nationwide injunction. Now, though FinCEN says it will not impose fines and penalties, it has set a new deadline.  

Here is a brief rundown of the key cases and enforcement actions that have shaped the CTA's legal landscape.

Key legal cases and developments
1. Texas Top Cop Shop, Inc, et al. v. Garland, et al. (No. 4:24-cv-478, E.D. Texas, Dec. 3, 2024): The US Supreme Court issued a stay on a nationwide injunction related to the CTA, leaving ambiguity about broader reporting obligations.
2. Smith, et al. v. US Department of the Treasury, et al. (6:24-cv-00336, E.D. Tex., Feb. 18, 2025): The US District Court for the Eastern District of Texas granted a stay on a nationwide injunction, effectively reinstating the CTA's reporting obligations.
3. Additional litigation and legislative proposals: Following these rulings, Congress introduced a bipartisan bill proposing a delay of reporting requirements until January 1, 2026. However, the current deadline remains March 21, 2025.

FinCEN's enforcement announcements
With the reinstatement of the CTA's reporting obligations, the Financial Crimes Enforcement Network (FinCEN) has outlined its enforcement strategy:

-- No immediate fines or penalties: FinCEN announced on February 23, 2025, that it will not impose fines or penalties for BOI filings during the initial implementation phase, though compliance for reporting by March 21, 2025 is still required.
-- Encouragement for compliance: FinCEN urges entities to file BOI reports by the March 21, 2025 deadline to avoid future enforcement actions.
-- Monitoring and guidance: FinCEN will monitor compliance trends and provide guidance to ease the filing process.

Impact on estate planning, succession planning, and trust administration
The CTA significantly affects estate planning and trust administration. While trusts are generally not "reporting companies," they must disclose beneficial ownership if they own or control such entities.

Key considerations for estate planners and trustees
-- Trusts as beneficial owners: Trusts with ownership in reporting companies must disclose beneficiaries, trustees, and individuals with substantial control.
-- Implications for succession planning: Family-owned businesses may need periodic reassessments to determine beneficial ownership.
-- Complexity in trust structuring: A broad definition of "substantial control" necessitates careful drafting of trust agreements to ensure compliance.
-- Increased administrative burdens: Trustees must maintain accurate records and report changes as required by law.
-- Potential red flags: Trusts with ambiguous structures or frequent changes may face heightened scrutiny.

Recommendations for estate planners and trustees
-- Review existing trust structures: Ensure all reporting obligations are met and ownership is clearly documented.
-- Educate clients on CTA compliance: Inform clients about how the CTA affects their entities and plans.
-- Establish internal compliance processes: Implement procedures to monitor ownership changes.
-- Engage legal and compliance experts: Consulting with professionals specializing in compliance is advisable.

Immediate steps required for compliance
Given the reinstatement of the CTA’s obligations, reporting companies should:

-- Assess reporting requirements: Determine if your entity falls under the CTA’s scope.
-- Gather required information: Collect all necessary BOI and ensure accuracy.
-- File by the deadline: Submit BOI reports by March 21, 2025, through the FinCEN portal.
-- Monitor legislative updates: Stay informed about potential changes to reporting requirements.
-- Implement internal compliance procedures: Establish policies for ongoing CTA compliance.
-- Seek legal and compliance guidance: Consult experts to navigate complex requirements.

Conclusion
The reinstatement of the CTA’s reporting obligations is a critical development in corporate compliance. While immediate fines are not imposed, entities should act swiftly to meet their obligations and avoid future enforcement actions. Proactive compliance measures are essential considering potential legal and legislative developments. Complete BOI reports through the FinCEN portal promptly to ensure compliance and prevent legal and financial repercussions.