This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: off again.

The Corporate Transparency Act was scheduled to go into effect on January 1 of this year, before it was sidelined by constitutional challenges. Now, the CTA is facing another roadblock after Treasury announced that it would not enforce penalties against domestic companies. For more on the CTA's complicated history, check out our previous episodes, which we'll link to in the show notes.

But joining me now to give us the latest update is Melissa Wiley, a partner at Kostelanetz. Melissa, welcome to the podcast.

Melissa Wiley: Thank you so much for having me.

David D. Stewart: So why don't we start off with just a recap of what this Corporate Transparency Act is?

Melissa Wiley: Sure. The Corporate Transparency Act, otherwise known as the CTA, really is just a statute that brings the United States into compliance with the rest of the world in terms of beneficial ownership reporting. If you have tried to open a bank account or any other type of financial account overseas, the things that the Corporate Transparency Act asks for would not be very surprising.

Ultimately, what financial institutions, and here, our government is trying to determine is amidst sort of a nesting doll of LLCs, partnerships, other entities, who are the people who actually own or control the entities? Now, there are a lot of reasons for wanting to know this information, chief among them anti-money-laundering laws to combat the illicit financing of terrorism, and to us and our listeners, tax evasion. Right?

So what the CTA essentially requires at its highest level is that all entities, either formed in the United States or formed elsewhere but registered to do business in the United States, file a report that lets the federal government know, specifically the Financial Crimes Enforcement Network, who their owners are. Now, it's a little more complicated in that, in that the definition of beneficial ownership has been somewhat controversial as it's spelled out both in the law and the regulations. But at a high level, what's being requested is just the name, some identifying information, including the birth date, the home address, and a form of ID of the people who are beneficial owners of the entities that I described.

Now, there are a lot of exceptions. Entities that are already very well regulated by other aspects of the government — so your publicly traded companies, your banks, your insurance companies, utilities — none of them have to file these reports. And where you've seen a lot of the controversy and the pushback come when it comes to this law is because it hits the very entities that people think it should not. So it hits the LLC that your uncle has because he does wedding photography. It hits the corporation that your friend formed so that she could give job advice. Those are the entities that are least likely to fall under an exception and most likely to have to file.

Now, while the filing requirements themselves may seem pretty straightforward, except for some of the definitions that we can talk about later if you'd like, really the very difficult part or the burdensome part is that the information has to remain current. So anytime any of the information reported on one of these forms changes — that could be the name of somebody who is a beneficial owner, it could be their address, it could be who the beneficial owners are, it could be any of the information reported for the entity itself — there is a 30-day deadline to get in and change that. And it seems like that also is something that a lot of people were pretty unhappy with when the law was first enacted.

David D. Stewart: So when was this law enacted?

Melissa Wiley: Oh, so this law was enacted a really long time ago. I think I started talking about it maybe three years ago, back in 2022. It was actually part of the National Defense Authorization Act back in 2021, so going back to the first Trump administration. People like to make comments about the fact that it was actually vetoed by the president and that had to be overridden in Congress. I can assure you that the CTA was not why that all took place, but nevertheless, it ultimately was passed and initially was supposed to have taken effect and did, in fact, take effect on January 1, 2024.

By the end of the year, by December 31, 2024, all preexisting entities, that is entities that existed before January 1, 2024, were supposed to have had their reports in. Any entities formed January 1, 2024, and later had 90 days after their formation to get their reports into FinCEN. But then, of course, the courts intervened.

David D. Stewart: What is the main concern over the burden of this? It doesn't sound like they're asking for a whole lot of information. It's just maybe a timing issue?

Melissa Wiley: There are a few things, right? There are always going to be people who are more concerned about privacy than others. You may view some of those concerns as legitimate or illegitimate considering where your political persuasion is or what your own particular beliefs are. But there are people who have very legitimate concerns about privacy around safety and have used these sorts of entities, have used LLCs in particular, to protect their privacy. Maybe it's their family's privacy. There's a great amount of wealth, and they don't want people knowing where it is. So there is a concern around just the privacy of the information.

There is a concern about the burdens of reporting, as the entity gets larger and more complex and there are more layers, that obviously gets significantly more difficult. Somebody asked me at one point, "What do you charge to file these forms?" And I said, "Well, I have to charge by the hour because there are some people that take me a half an hour or an hour to figure out what needs to be reported, and there are others that take 10, 15, 20 hours just because their structures are so complex." So I think there is a burden in terms of the initial reporting, but also that 30 days to keep this thing, making sure that it's always going to be accurate and up to date.

The other part of it is that the reporting form itself, in addition to the information that it requires, also requires that a photo image be updated, either the person's passport or their driver's license that has to be uploaded with the report. So some folks were not so excited to have that information all in one central, hopefully not hackable, database that lives in the Treasury Department.

David D. Stewart: Well, speaking of Treasury, they recently made an announcement. Could you tell us about what action they just took?

Melissa Wiley: Yeah, so I don't want to say this was completely unexpected, but perhaps the timing was a little bit unexpected. It was earlier this month, on March 2, the Treasury Department came out and said that it was no longer going to enforce the Corporate Transparency Act against U.S. citizens and domestic reporting companies. Now, you may recall, I said any entity that is either formed in the United States or registered to do business here. What that effectively means is that Treasury is only going to enforce the Corporate Transparency Act against those foreign entities who register to do business in a U.S. state. All of the entities formed in the U.S., there will be no enforcement, no penalties for noncompliance.

And that is notwithstanding that just a few days earlier, FinCEN had said, "Look, we're not going to impose penalties for a while, given all of the confusion that's going on. If you happen to miss the March 21 extended deadline for filing, we won't impose penalties on you then." Treasury took this extra step and came out and said, "Well, actually all bets are off for anyone other than foreign reporting companies. You're good to go, no enforcement, no penalties."

David D. Stewart: So is this consistent with the statute? It doesn't sound like there was a carveout for domestic companies in the original statute.

Melissa Wiley: Yeah, it is completely inconsistent with the statute. This statute provides for two classes of reporting companies: the foreign reporting companies, which apparently we're going to continue to enforce against, and the domestic reporting companies. So what this is doing is effectively, in my opinion, gutting the law.

As I mentioned, the reporting companies that are subject to the law that are foreign formed, they have to take that extra step of registering to do business in a U.S. state to become subject to the Corporate Transparency Act. So if you happen to be a foreign company and you're operating in the U.S., but for whatever reason, you haven't registered in any state, either you don't think you have to or maybe there are some nonlegitimate reasons, so long as you don't take that step to register to do business with a state, you're not subject to this law at all. And we know that domestic companies are not going to have the law enforced against them either.

So somebody had asked me, "Well, if I was a foreign company, why wouldn't I just form a U.S. subsidiary in a secrecy jurisdiction and that could then just operate without reporting?" And I said, "I don't know. Why wouldn't you?" So this is certainly kind of returning us to the state that we were at before the CTA, where forming LLCs, forming other forms of entities where it's impossible to figure out who the people are who actually own the company and the assets is, frankly, back on the table.

David D. Stewart: What sort of justification did Treasury give for making this change?

Melissa Wiley: Well, I can tell you exactly what the release says, which is "it was in the interest of supporting hard-working American taxpayers and small businesses, and ensuring that the rule is appropriately tailored to advance the public interest." Talking about reining in burdensome regulations, and that may be completely genuine. The people who made this policy decision may have completely believed that, but the effect of it is not, in my view, supporting American taxpayers and small businesses. It's opening us up for money laundering again.

Part of the impetus for the Corporate Transparency Act's enactment to begin with was because the United States had been making all of these unattractive top 10 lists of like top 10 places for money laundering, top 10 places for anonymous shell companies, and that clearly wasn't something that Congress wanted to be on. And as I mentioned in the beginning, this concept of a beneficial ownership registry exists in much of the world, particularly in many of the financial centers in Europe and beyond. I spoke last year at a conference in Europe about the CTA, and somebody said to me, "Well, welcome to the party United States." I guess we have now left the party. We've had enough and we're going home.

David D. Stewart: If this is inconsistent with the statute, is there anyone out there that could compel the government to start collecting this information?

Melissa Wiley: Yeah, I've had this conversation with a few people now because all of the learning that tax lawyers have done lately around the Administrative Procedure Act and promulgating regulations and when they're appropriate and when they're not, I think all of that learning doesn't help us here. Right? The typical challenges you see to regulations is that they have overstepped and that the entities that are being harmed by that overstepping sue in the courts and say, "This is beyond what the statute permits; you have to reel this back." And what we found in the past few years in terms of administrative law jurisprudence is the courts now have much more latitude to say, "Yeah, you're right. The way I read that statute, it doesn't get that far."

Here, we have the complete flip side of that coin, where we've got regulations that are not going, or what we expect to be new regulations that are not going to go nearly as far as the law intended or required. One of the things that's really interesting about the Corporate Transparency Act, the statute itself, is that it's got this whole beginning part that gives the sense of Congress. And Congress talks about why it is that it's enacting this law, all the evils that it's trying to combat. And certainly, the curtailing of the law through regulation to only apply to a tiny fraction of entities is not going to be fulfilling what Congress wanted. It's not going to be going far enough to actually enforce the law and implement it.

So who has standing to challenge that? Clearly, you have to have some kind of harm. I think the most obvious candidate might be Congress, right? But I don't see the will of Congress right now saying, "We want to sue Treasury to come out with regulations that are more stringent and fulfill our purpose." You may have, and you certainly do have a number of members of Congress who have filed amicus briefs in some of the cases that have been going on, who might want to, but I'm not sure that a subset of Congress has that kind of standing.

At the same time, if you were an individual or an entity that wants to challenge this, you'd have to articulate some kind of harm. And what is my harm? Is my harm I'm subject to money laundering? Is my harm like I might be a target of illicit financing of terrorism? Who is the party that is harmed in a tangible way that would allow them to have standing and challenge this? And in all the conversations I've had, nobody has really been able to come up with anybody who might be in that position other than Congress.

David D. Stewart: So is there a danger for companies that are trying to be compliant, in this world where you have regulations that are inconsistent with the statute? And does that raise compliance risks for your clients?

Melissa Wiley: Yes and no. Certainly, I've got clients, because this seems to change by the day or by the week, asking like, "What is the current state of the law? And then what do I do given the current state of the law?"

The Treasury announcement that I read from before and that we were talking about, it's not law. It's a statement that is on the Treasury Department's website. One of the recent courts that decided that their case was now moot because of this announcement actually cited to a Newsweek article where President Trump had said, "Yes, we're not enforcing this." That was their basis for saying, "We don't need to argue about that anymore." And respectfully, I disagree.

If you are a company that wants to report — and particularly what I see in a lot of these cases is these are companies that had started the process, that invested a lot of time, a lot of hours, professional help to come up with the answer of how and what to report — the portal is still open; you can still file your reports. It's on a voluntary basis. If you're not bothered by the government having that information, and honestly, the government has most of that information anyway in most cases, but if you're not bothered by that and you've already got it, you might as well update it. You might as well go ahead and file it.

That said, it's pretty clear that for the foreseeable future, we're not going to have any enforcement. There's not going to be any penalties for not filing these things. And so where does that leave filers? Essentially, I've been leaving it in my clients' hands to say, "Do you just want to get this thing over with or do you want to wait some more and maybe we need to revisit it?"

Part of the problem and how this has all played out in terms of the multiple courts going back and forth with injunctions and no injunctions and then statements from FinCEN and statements from Treasury, is that it leads [to] a lot of confusion. The benefit of that confusion, if there can be any, is that the penalty regime in the Corporate Transparency Act itself only applies to willful behavior. So if you could not figure out if the law applied to you or if it was even valid on any given day, you would be excused from penalties if you kind of tried to figure things out and couldn't.

It's just a real difficult situation right now, and there was, and there still is a piece of legislation that was passed virtually unanimously in the House to push off the effective date until January 1, 2026. Sort of saying, "You know what? Don't pay attention here anymore. Don't try to figure it out. We will sort things out between now and then and then we'll have some real guidance."

And that is sitting with the Senate right now; it's been referred out to the committee. And my hope is that the Senate does act on that and says, "Look, let's just press pause, figure out what we're going to do here, and stop making it so difficult for people to determine whether the law is on, off, or applies to them."

David D. Stewart: So speaking of all of this sort of confusion over the last few weeks, we've been talking about these cases, Texas Top Cop Shop, Small Business Association of Michigan, and Smith. What's going on with those?

Melissa Wiley: Yeah, it's so complicated that I actually just pulled out my cheat sheet that I had to make to keep track of where all of these various cases are. The litigation, and particularly when the Court started weighing in on this happened just about a year ago, which is kind of crazy to think about, that all of this has happened within the span of 12 months.

But it was actually the Northern District in Alabama with the National Small Business Association case that kicked things off for us in March of last year, right? That was the case that initially said that the Corporate Transparency Act was likely unconstitutional. It went to the Eleventh Circuit. The Eleventh Circuit heard oral argument in September of last year. Of course, that was still under the Biden administration, so that administration was vigorously defending the law. Sort of surprisingly, the Eleventh Circuit has just been sitting on that case and letting us all wonder what it really thinks. So that is still pending.

After that, in terms of courts that have spoken on the constitutionality, we had the two Texas cases — the Texas Top Cop Shop, say that five times fast, and the Samantha Smith case — that both came out and said, both from the Eastern District of Texas saying, "Look, this Corporate Transparency Act thing, it's likely unconstitutional, and so we are going to issue a nationwide injunction."

Now, that's, I think, when people really started paying attention to what was going on in the courts, because that first case in Alabama, the injunction there was just on the plaintiffs in that case, right? So just members of the National Small Business Association and the named plaintiff there, which I can't help but always pointing out was somebody named Isaac Winkles, which is terrific name for a lead plaintiff. The injunction there was just against that small subset. The Texas court was the first one to come out and give us these nationwide injunctions for everyone, whether you were involved in the case or not, whether that court had jurisdiction over you or not, and that's when everyone really started paying attention.

So the Texas Top Cop Shop case is the one that ruined every CTA lawyer's holidays this year. The court initially came out, issued this injunction, likely unconstitutional. The Fifth Circuit took up the appeal rather quickly. The motions panel in the Fifth Circuit said, "No CTA. We're going to keep this enjoined." The merits panel then a couple of days later, right around Christmas, flip-flopped. That is the case that eventually went up to the Supreme Court where the Supreme Court said, "No, this nationwide injunction is not where we're going."

As a result of that case, we all thought in January, "OK, we are back on. The Supreme Court has just called off this Fifth Circuit national injunction." But what now the Trump administration decided to do was say, "Well, that was just in the one case. That was just in Texas Top Cop Shop. The Samantha Smith case is still out there, even though it has virtually identical facts. It also had a nationwide injunction, and that one has not explicitly been overturned by the Supreme Court. Even though if it went all the way up to the Supreme Court, it would be, it hasn't been. So we're going to rely on that injunction to just hang out here for a while." At that point, the Trump administration said, "No compliance; you don't need to file. We're going to wait and see."

The ensuing next weeks are where it really got quite dizzying. At some point, the Trump Department of Justice decided to file a motion in the Smith case saying, "Could you please lift the injunction? Because if it went to the Supreme Court, it would be overturned." Now, this seems inconsistent, right? We know that the Trump administration generally doesn't like the CTA. It was part of Project 2025. We've had people on the record, apparently in Newsweek, saying that "we don't like this law." But the Trump Department of Justice goes in to the Eastern District of Texas and says, "Please lift your injunction. Supreme Court says it's not OK." And the Eastern District of Texas has no real option but to agree. So that then gets lifted.

Very soon thereafter, the Trump Department of Justice files a brief again in favor of the CTA and its constitutionality in another case in the Fourth Circuit. Now, that case had started out in Eastern District of Virginia. That's the Community Associations Institute. That case initially, the Eastern District of Virginia kind of bucked the trend and said, "We think the law is constitutional." That gets appealed to the Fourth Circuit. Trump DOJ files a brief in that case saying, "Yeah, we agree. We think it is constitutional." So now we are all thoroughly and completely confused.

Layer on top of that, we've got a case in Oregon that has ruled that the CTA is likely constitutional. That is on appeal in the Ninth Circuit. We've got a case that just came out of Massachusetts; that's the Black Economic Council of Massachusetts. That one is pending. We've got one in Maine; that's the Boyle case. That one, the court also said that they thought the law was constitutional.

And then we've got these really interesting two cases that came out, I believe virtually on the same day, just earlier this month: Small Business Association of Michigan in the Western District of Michigan and the Taylor case out of the District of Utah. So Small Business Association of Michigan says, "We think that this law is unconstitutional. We are going to impose an injunction, but it's just going to be on the class because we get it, this nationwide injunction thing is not going to fly. And by the way, we don't think this is moot anymore just because of this Treasury announcement." The Treasury announcement, and I agree with the court on this, they could change their minds tomorrow. It's a policy statement; it's not binding law.

Virtually at the same time, you also have the Taylor case now in Utah saying exactly the opposite. The Taylor case in Utah, they decided to stay the proceedings in that case because they think it's pretty much moot at this point because the president in Newsweek said that all bets are off, and Treasury put something on their website.

So if you are thoroughly and completely confused at this point, you are completely forgiven because these really are all over the place. And on top of that, we've now got cases in the First, Fourth, Fifth, Sixth, Tenth, and Eleventh Circuits that at some point, I can only hope that the Supreme Court will take up the merits and tell us what the right answer is.

David D. Stewart: Is there a possibility that — So the law is still out there, we do have this policy statement. Could the DOJ do a heel turn on the law and say, "We are now against it," and then attempt to attack it via the courts by siding with the plaintiffs?

Melissa Wiley: Absolutely. And frankly, I thought that's what they would do, up until they filed the motion in the Smith case saying, "Please lift this injunction that we've been relying on." And then even more so, just days later when they filed the brief in the Fourth Circuit vigorously defending the constitutionality, my thought was that they were just going to let these cases wither on the vine and say, "We don't defend the constitutionality of this law anymore. We've had a change in administration, we have a change in policy. Courts decide how you will."

David D. Stewart: So coming back to how you navigate this as a practitioner right now, are you getting stuck sending out messages to your client saying, "It's on. It's off. It's on. It's off"?

Melissa Wiley: Yeah, that's a fantastic question because I stopped. I did up through probably about January, and then I felt like it was both making me look uninformed to keep changing my mind, even though that's what was definitely going on, and it became impossible for my clients to keep up with. Like, "Which one is the most recent? What do I do?"

At this point, I mainly just have the clients that I will send personal notes to and say, "FYI, I know you're following this. This is where we are right now." But all of my clients at this point have put things on hold and have decided they're just going to sit it out until the merry-go-round just stops for a little bit.

David D. Stewart: Well, we'll have to keep an eye on things and see if that merry-go-round ever stops. Thank you so much for being here and walking us through all of this.

Melissa Wiley: Absolutely. Thank you for having me.

David D. Stewart: That's it for this week. You can find me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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