Treasury Dept. Halts Corporate Transparency Act Penalties, Narrows Scope to Foreign Entities

Despite a federal court lifting an injunction on reporting requirements for the Corporate Transparency Act last month, the Treasury Department announced Sunday that it will not enforce penalties or fines on U.S. citizens for violation of the law’s reporting requirements.

The announcement is the latest turn in legal battles surrounding the act and its Beneficial Ownership Information reporting requirements that have come under multiple constitutional challenges in the past year.

“The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either,” the department announced in a release Sunday.

“The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only,” the release added. “Treasury takes this step 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.”

Attorneys general from a majority of U.S. states have deemed the act unconstitutional. Under the law, companies formed prior to Jan. 1, 2024, were to have until Jan. 1, 2025, to comply, but FinCEN had extended the deadline to Jan. 13 due to the initial Dec. 23 court ruling.

Companies founded after Jan. 1, 2024, were given 30 days to comply.

Those failing to comply with the act’s reporting requirements were to face civil penalties of up to $500 per day (for ongoing violations) and criminal penalties, including fines of up to $10,000 and imprisonment for up to two years.

That deadline was paused after an injunction was imposed by a U.S. District Court in Texas on the grounds of potential Tenth Amendment violations. Then, five days after lifting the injunction, the U.S. Court of Appeals for the Fifth District vacated its own stay of the imposed injunction.

Last month, federal judges officially lifted the injunction, putting reporting requirements back in effect and giving companies a 30-day window to comply. Those reporting requirements were overturned Sunday with the Treasury Department’s announcement.

“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent.  “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”

The Corporate Transparency Act was included in the National Defense Authorization Act for Fiscal Year 2021. President Trump’s veto of the act on Dec. 28, 2020, was overridden in both chambers of Congress in a bipartisan vote four days later.