Latest CTA Twist: Trump Administration Will Defend Corporate Transparency Act, But May Reform It

Latest CTA Twist: Trump Administration Will Defend Corporate Transparency Act, But May Reform It

February 11, 2025

The new Trump administration has taken its first public position on the Corporate Transparency Act (“CTA”). In what may come as a surprise to many critics of the CTA, the administration intends to defend the CTA against court challenges to its constitutionality. At the same time, however, the administration proposes to “assess its options” to reprioritize CTA reporting by focusing on higher-risk companies while providing relief to lower-risk companies.

Background

The CTA currently remains on hold because of a nationwide order blocking its reporting regulations (the “Smith Order”), which was issued on January 7 by a federal district court in Tyler, Texas in the case of Smith v. U.S. Department of the Treasury.

Until February 5, the federal government had not appealed the Smith Order. Some observers believed this indicated opposition by the new Trump administration to the CTA. After all, the new conservative administration has a strongly anti-regulatory agenda, and many conservatives regard the CTA as an example of regulatory overreach. (Project 2025, for example, calls for the CTA’s repeal.) If, in fact, the new administration opposed the CTA, then not appealing the Smith Order would seem a simple and logical way to keep the CTA on hold. Regardless of one’s own political views and opinion of the CTA, therefore, it was reasonable to assume the government (i.e., the Trump administration) would probably not appeal the Smith Order.

The Latest Twist

As we all know by now, however, the CTA saga is twisty and unpredictable. It out-Shyamalans Shyamalan. The CTA script apparently called for another big twist right about now.

So the government appealed the Smith Order.

In addition to filing its notice of appeal, on February 5, the government asked the Smith court to “stay” (put on hold) the Smith Order until the U.S. Court of Appeals for the Fifth Circuit  (the “Fifth Circuit”) can decide the government’s appeal. Because the Smith Order put the CTA on hold, a stay of the Smith Order would bring the CTA, and its reporting requirements, back into effect.

In its court filing requesting the stay, the government makes many of the same arguments as those made by the Biden administration in its own CTA court filings. In particular, the government’s motion strongly argues that the CTA is constitutional, and therefore that the Smith Order is unjustified.

The government’s court filing, however, departs from the Biden administration’s approach in one important respect: it announces the government’s intent to consider reprioritizing the CTA’s reporting requirements to focus on higher-risk companies. The government wrote:

As a matter of policy, [the U.S. Treasury Department] continues to assess the potential burden of the Final Rule [i.e., the CTA reporting regulation]. If this Court grants the stay, FinCEN [the Treasury Department office that administers the CTA] intends to announce that it will extend the compliance deadline for thirty days. During that period, FinCEN intends to assess its potential options to prioritize reporting for those entities that pose the most significant national security risks while providing relief to lower-risk entities and, if warranted, amending the Final Rule.

FinCEN also updated its CTA website to announce the new position. In doing so, it offered a few additional comments:

• The proposed 30-day extension of the reporting deadline (if the stay is granted) will apply to “all” reporting companies. This would include not only companies formed before 2024, which originally had until January 1, 2025 to make their CTA filings, but also companies formed in 2024 (which had 90 days after formation to make their initial CTA filings) as well as companies formed in 2025 (for which the period is 30 days after formation).
• While the government’s court filing in Smith simply referred to “providing relief” to lower-risk entities, FinCEN’s website was slightly more specific. It referred to options “to modify further deadlines or reporting requirements” for lower-risk entities.

What we know, and what we don’t know

• The government’s appeal of the Smith Order (and request that it be stayed) is the incoming Trump administration’s first public statement about the CTA. Contrary to many predictions, it shows that the new administration supports the CTA and plans to defend its constitutionality against court challenges.
• At the same time, if a stay of the Smith Order is granted, the government says it will assess its options to reprioritize the CTA reporting requirements.
  • There are several things about this proposed reprioritization, however, that we do not know:
    • We do not know what form the reprioritization would take.
      • The government referred to reprioritizing the reporting requirements toward companies that “pose the most significant national security risks” and away from “lower-risk” companies. But we do not know how those two categories of companies would be determined.
      • We also do not know if “lower-risk” companies would be relieved of all CTA obligations, or if they would remain subject to some reduced level of obligations (for example, delayed reporting deadlines).
    • More importantly, we do not know for certain if any reprioritization will be adopted, because the government has only committed to “assess its options.” The government has also committed to do so only if the Smith Order is stayed.
• For now, the CTA remains on hold, because the Smith Order remains in effect.
  • We don’t know, however, how long the Smith Order will remain in effect, now that the government has requested that it be stayed. In the Texas Top Cop Shop (“TTCS”) case, the U.S. Supreme Court on January 23 granted a request, which had been made by the outgoing Biden administration, for a stay of a similar nationwide preliminary injunction against the CTA (the “TTCS Injunction”). Although there are legal differences between the Smith Order and the TTCS Injunction, it’s possible the Supreme Court’s stay of the TTCS Injunction could influence the Smith trial court or the Fifth Circuit to grant a similar stay of the Smith Order. In any event, the Supreme Court itself may ultimately be willing to stay the Smith Order.
• If the Smith Order is stayed, then the government has committed to a 30-day extension of the CTA reporting deadlines. Companies should therefore be prepared to make their CTA filings on 30 days’ notice.
  • Some of the possible CTA reprioritizations that FinCEN might adopt, however, would take longer than 30 days to implement. Amendments to the CTA reporting regulations, for example, would likely require compliance with the lengthy process for federal rulemaking. And any CTA changes, whether or not requiring formal rulemaking, would require some time to develop and draft, and additional time to “roll out” through a public-information campaign to reporting companies, trade associations, law firms, filing services and other relevant parties. It seems very unlikely that all of those actions could be accomplished within 30 days (and any requiring formal rulemaking would need much longer).
    
    This suggests that the 30-day reporting extension (if the Smith Order is stayed) is unrealistically short. Assuming the government is serious about CTA reform, it’s reasonable to assume a longer period will be needed. But the government has only committed to a 30-day extension, and there is no assurance that period would be further extended. Companies should be prepared, therefore, to comply with a 30 day filing deadline, if the Smith Order is stayed.

How Cokinos | Young can help

The corporate attorneys at Cokinos | Young continue to closely monitor CTA developments and will keep you updated as important events occur. If you have any questions, please contact one of our following corporate attorneys:

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