Beneficial Ownership Reporting Requirements: A Tumultuous Journey Through Courts and Congress

The saga of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements continues to unfold, marked by a whirlwind of court proceedings and legislative maneuvers. What began as a well-intentioned anti-money laundering initiative has morphed into a contentious battleground, pitting small businesses against federal regulators, with the U.S. House of Representatives stepping in to offer a temporary reprieve. As of today, the reporting requirements are back in effect following a recent court ruling, but a bill passed by the House seeks to delay the deadline to 2026, leaving millions of businesses in limbo as the Senate deliberates.

The Genesis of the CTA

Enacted in 2021 as part of the National Defense Authorization Act, the CTA aimed to pierce the veil of anonymity shrouding shell companies often used for illicit activities like money laundering, terrorism financing, and fraud. The law mandates that certain entities, primarily small businesses with fewer than 20 employees and less than $5 million in annual revenue, report detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are defined as individuals who own or control at least 25% of a company or exercise substantial control over it, such as corporate officers.

The original deadlines were clear: companies formed before January 1, 2024, had until January 1, 2025, to file their initial BOI reports. Those created in 2024 had 90 days from formation, and those established after January 1, 2025, had 30 days. Failure to comply could result in steep penalties—up to $606 per day, $10,000 in fines, and even two years in prison for willful violations. FinCEN estimated that over 32 million entities would be affected in the first year alone, with millions more added annually as new businesses emerge.

A Rocky Rollout

The rollout of the CTA has been anything but smooth. Despite its lofty goals, the law faced immediate pushbacks from small business owners, trade groups, and legal experts who argued that the requirements were overly burdensome, poorly communicated, and possibly unconstitutional. Critics pointed to the complexity of identifying beneficial owners, the risk of exposing sensitive personal data, and the sheer volume of businesses caught in the net many of which posed no realistic threat to national security.

By mid-2024, only a fraction of the required reports had been filed, with FinCEN reporting that less than a third of the 32 million affected entities had complied. This sluggish uptake fueled calls for a delay, with organizations like the American Institute of Certified Public Accountants (AICPA) and the National Association of Home Builders (NAHB) urging Congress and FinCEN to extend deadlines and clarify the rules.

Courtroom Chaos

The legal challenges began almost as soon as the CTA took effect on January 1, 2024. Multiple lawsuits across the country questioned the law’s constitutionality, particularly its reliance on Congress’s Commerce Clause authority. The most pivotal case, Texas Top Cop Shop, Inc. v. Garland, erupted in the U.S. District Court for the Eastern District of Texas. On December 3, 2024, the court issued a nationwide preliminary injunction, halting enforcement of the CTA and suspending the January 1, 2025, deadline. The judge ruled that the law likely exceeded Congress’s powers and posed an undue burden on businesses.

The Department of Justice (DOJ) swiftly appealed to the Fifth Circuit, which briefly reinstated the requirements on December 23, 2024, setting a new deadline of January 13, 2025. However, in a dramatic twist just three days later, the Fifth Circuit reversed itself, reinstating the injunction on December 26, 2024. The DOJ then escalated the matter to the U.S. Supreme Court, filing an emergency application on December 31, 2024, to stay the injunction. On January 23, 2025, the Supreme Court granted the stay, allowing BOI reporting to resume only for another Texas district court case, Smith v. U.S. Dept. of the Treasury, to issue a separate nationwide injunction on January 7, 2025, pausing enforcement yet again.

The Smith case added another layer of complexity. On February 17, 2025, the Eastern District of Texas lifted its injunction, citing the Supreme Court’s Texas Top Cop Shop ruling as precedent. This decision reinstated the CTA’s requirements effective immediately. FinCEN responded on February 19, 2025, acknowledging the whiplash and extending the deadline for most companies to March 21, 2025 – 30 days from the reinstatement – to give businesses breathing room amid the chaos.

Congressional Intervention

While the courts battled it out, the House of Representatives took decisive action to ease the pressure on small businesses. On February 10, 2025, the House unanimously passed H.R. 736, the Protect Small Businesses from Excessive Paperwork Act of 2025, with a vote of 408-0. Introduced by Rep. Zach Nunn (R-Iowa) and co-sponsored by Reps. Sharice Davids (D-Kan.) and Donald Davis (D-N.C.), the one-sentence bill extends the BOI reporting deadline for companies formed before January 1, 2024, to January 1, 2026. The bipartisan support underscored the widespread recognition of the CTA’s implementation woes.

During the House debate, Rep. French Hill (R-Ark.) highlighted the confusion sown by conflicting court rulings, noting that fewer than nine million of the 32 million required businesses had filed. Rep. Daniel Meuser (R-Pa.) praised the delay as a chance for the incoming Trump administration and courts to reassess the law’s future, while Rep. Nunn emphasized that many owners mistook FinCEN notices for scams due to poor outreach.

The bill now heads to the Senate, where a companion measure introduced by Sen. Tim Scott (R-S.C.) awaits consideration. However, the Senate’s timeline remains uncertain, and with the March 21 deadline looming, businesses are left wondering whether relief will arrive in time.

The Bigger Picture

The CTA’s tumultuous journey reflects broader tensions between regulatory ambition and practical reality. Proponents argue that transparency is essential to combat financial crime, pointing to Congress’s broad Commerce Clause authority as upheld by the Supreme Court in its Texas Top Cop Shop ruling. Critics, however, see it as government overreach, ensnaring millions of law-abiding small businesses in red tape. Separate legislative efforts, like the Repealing Big Brother Overreach Act, seek to scrap the CTA entirely, though they lack bipartisan traction.

For now, the reporting requirements are back on, with FinCEN urging voluntary compliance even as legal challenges persist. Oral arguments in the Fifth Circuit for Texas Top Cop Shop are slated for March 25, 2025, and at least six other federal cases are pending nationwide. The Trump administration may also influence the CTA’s fate, with hints from FinCEN of potential modifications for “lower-risk” entities—an acknowledgment that the law’s one-size-fits-all approach may need rethinking.

What’s Next for Businesses?

As of February 21, 2025, companies must prepare to file by March 21, 2025, unless the Senate acts swiftly on H.R. 736 or courts intervene again. The process involves submitting names, addresses, birthdates, and identification numbers for beneficial owners via FinCEN’s online portal—a task many find daunting amid the uncertainty. Legal and accounting professionals are advising clients to gather records now, even if compliance remains voluntary pending further developments.

The Beneficial Ownership Reporting saga is far from over. With courts, Congress, and the executive branch all in play, small businesses face a high stakes waiting game. For now, the March 21, 2025, deadline looms large, but the House’s unanimous vote signals hope that clarity and relief may yet emerge from the chaos.