In our prior Alert in February on the Corporate Transparency Act (“CTA”), we indicated that the Financial Crimes Enforcement Network (“FinCEN”) set a March 21, 2025, deadline for reporting companies to come into compliance with the CTA, but noted that FinCEN was “assess[ing] its options to further modify deadlines.” Several days after we issued that Alert, FinCEN announced that it would not issue any fines or penalties, or take any other enforcement action, for failing to comply with the March 21 deadline, and indicated that it intended to extend the deadline further. Then on March 2, the U.S. Treasury Department took a significant additional step, announcing that, consistent with “President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations,” it will issue rules exempting U.S. citizens and domestic reporting companies from fines and penalties under the CTA, and limiting the application of the CTA to foreign reporting companies only.
What does this mean? It would seem that, absent the March 21 deadline, and without the threat of enforcement action, the CTA is no longer something to be concerned about for domestic companies. If a tree falls in the woods and no one is there to hear it, does it make a sound? If a law is on the books but not enforced, is it really a law?
Still, some questions remain. Foreign reporting companies, which are entities formed outside of the United States but that qualify to do business in the United States by registering with the secretary of state or a similar office (in New Jersey, the Department of the Treasury, Division of Revenue and Enterprise Services) in one or more states, are not plentiful. In many instances, foreign businesses form domestic subsidiaries through which to operate in this country, for tax and liability reasons. But will the new rules expand this category to include such domestic subsidiaries, or other domestic companies with foreign ownership? Also, the CTA has not been repealed by an act of Congress, nor has it been ruled unconstitutional by the Supreme Court (at least three federal district court judges have held it to be unconstitutional, but those decisions are being appealed, all nationwide injunctions against the CTA’s enforcement have been stayed, and other federal judges have reached the opposite conclusion). In fact, the Trump Administration appears poised to defend the CTA’s constitutionality, despite the efforts of certain Republican members of Congress to repeal the CTA. While the current administration has suspended the CTA’s enforcement, a future presidential administration would almost certainly be within its rights to pick up where the Biden Administration left off and turn back on enforcement of the CTA in all instances envisioned by Congress.
But for now, it appears that domestic companies can stand down from their CTA compliance efforts. Anyone with questions should feel free to reach out to Jason Navarino, Hannah Greendyk, or any member of the Riker Danzig Corporate Group.
