Supreme Court Clears Way for Corporate Transparency Act Enforcement

The U.S. Supreme Court allows the Corporate Transparency Act's enforcement, mandating most U.S. businesses to report ownership details to FinCEN. The Fifth Circuit will hear further challenges to the law on March 25.

Key points:

The Corporate Transparency Act (CTA) faces ongoing legal challenges, including arguments before the Fifth Circuit in March.
Most U.S. businesses must disclose ownership and control information under the law.
Transparency advocates argue the law will combat money laundering and criminal activity.

The U.S. Supreme Court has allowed the federal government to enforce the Corporate Transparency Act (CTA), staying an injunction that previously blocked its implementation, according to Bloomberg Law.

The law, enacted to improve transparency around beneficial ownership, mandates that most U.S. businesses report information on their owners to the Financial Crimes Enforcement Network (FinCEN).
Justice Neil Gorsuch concurred with the decision, emphasizing the need to resolve whether district courts can issue universal injunctions.
However, Justice Ketanji Brown Jackson dissented, citing insufficient evidence from the government to justify immediate enforcement.

The Supreme Court’s decision paves the way for FinCEN to proceed with enforcing the CTA while the Fifth Circuit Court of Appeals continues to hear challenges to its constitutionality. Oral arguments are set for March 25.

Who Must Comply

The CTA applies to an estimated 32.6 million U.S. businesses formed before 2024, as well as approximately 5 million new entities incorporated annually.
Failure to comply could result in fines of $500 per day.

The law aims to prevent the misuse of anonymous shell companies for illicit activities like money laundering and tax evasion. Transparency advocates, such as the Hudson Institute’s Kleptocracy Initiative, argue that the CTA will bolster law enforcement efforts to combat financial crimes.

“With the CTA now once again enforceable, law enforcement will be better equipped to stop criminals who use anonymous U.S. shell companies to launder fentanyl profits,” Nate Sibley, a Hudson Institute fellow, said in a statement.

Legal Challenges

The CTA has faced significant legal pushback. Texas Top Cop Shop Inc., a firearms retailer represented by the Center for Individual Rights, has argued that the law is unconstitutional. This case is among several challenging the law in federal courts.

Judge Amos L. Mazzant III initially blocked the CTA nationwide in December, citing concerns about its scope and enforcement. The injunction was later lifted by a Fifth Circuit motions panel before being reinstated by another panel. The Supreme Court’s stay now permits enforcement to move forward.

Industry Response

The CTA’s rocky rollout has created confusion among businesses and tax professionals. FinCEN extended the initial Jan. 13 compliance deadline but has encouraged voluntary reporting in the interim.

To date, roughly 10 million businesses have already submitted ownership information, according to FinCEN. Experts like Tom O’Saben of the National Association of Tax Professionals advise businesses to file early to avoid potential penalties and technical issues caused by a last-minute rush.

What’s Next

While the CTA’s enforcement is back on track, its future remains uncertain. Business groups and plaintiffs continue to challenge the law in court, and the Fifth Circuit’s ruling could further shape its implementation.

“The next steps are exactly what we were planning this morning, we are litigating this in the Fifth Circuit, where we think we are right and will prevail,” said CIR Litigation Director Caleb Kruckenberg.