Authors: Dean Smith (PhD, CFP, TEP, CPA, CA, RWM; Partner), Hunter Moore (CPA, Iowa);
The CTA: An Interim End to a Never-Ending Saga
When we issued our prior U.S. Tax Trend, CTA back on again – for now – or is it??, on February 28, 2025, FINCEN announced its intention to issue interim final rules no later than March 21st, 2025. On the targeted date, the Treasury Department released the highly requested guidance. While U.S entities rejoiced at their exclusion, foreign organizations now have the information needed to comply with BOI reporting.
Interim Final(ly) Rules
As anticipated, interim final rules were released on March 21st, 2025, clarifying the reporting requirements. Under the new guidance, the Treasury Department established an updated filing deadline of April 20th, 2025 and followed through with their intention to limit reporting to foreign entities and foreign owners.
For BOI purposes, a “reporting entity” means only those entities that are:
• formed under the laws of a foreign country, and
• have registered to business in any U.S. State or Tribal jurisdiction by the filing of a document with the secretary of state.
Note, even if an entity is subject to reporting, the disclosure of any U.S. owners’ information is not required.
While Canadian companies typically meet the two requirements when operating within the U.S., it’s important to understand the second component: filing registration documents with the state.
Registering with a state is common practice but not required. The determination to do so is made without regard for an organization’s tax position. – the government’s right to levy taxes is not based solely on registration. Instead, registering with a state allows an entity to establish legal standing. Without such standing, a company loses its ability to pursue remedies via the state’s judicial system but can continue to be held liable for any wrongdoing.
Specific facts and circumstances have a significant impact on the decision, but companies may choose to forego registration – and therefore BOI reporting – if the organizational and ownership structure limits exposure (limited partners of an LP, LLPs, LLCs, etc.).
The interim final rules are just that: interim; the Treasury Department is soliciting comments and will issue a final ruling later this year. However, we believe it is unlikely further challenges will have an impact on the April 20th deadline and encourage applicable organizations to comply with the reporting mandates.
A Primer – how did we get here?
Let’s take a moment to understand the path which led us to today’s U.S. Tax Trend.
The CTA took effect on Jan 1, 2024, requiring certain domestic and foreign companies to submit BOI reports to FinCEN. Per the Treasury Department, the reports are “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.”
Taxpayers and advocacy groups objected to the Act’s requirements. On December 3rd, 2024, the U.S. District Court for the Eastern District of Texas stepped into the fray by issuing a nationwide preliminary injunction blocking enforcement of the CTA (Texas Top Cop Shop Inc., et al v. Garland, et al.) While not the only legal action taken, this began the on-again, off-again response to the validity of the CTA.
Shortly after the District Court’s findings, on December 23rd the U.S. Court of Appeals for the Fifth Circuit ruled in favor of the U.S. Department of Justice and reinstated the original January 1st, 2025, deadline. The ruling’s impact was quickly reversed three days later when the appellate court vacated its previous stay.
The welcoming of a new year introduced additional legal challenges to the Act. The U.S. District Court for the Eastern District of Texas came into play once again. On January 7th, 2025, the Court ruled in favor of Smith and issued an order preventing the enforcement and implementation of the CTA. The drama continued January 23rd when the U.S. Supreme Court stayed the District Court’s ruling in favor of Texas Top Cop Shop Inc. However, the Supreme Court’s intervention did not address the District Court’s ruling in Smith. As such, an injunction against the Act was still in place.
Due to the Supreme Court’s ruling, on February 18th, the District Court stayed its previous decision in favor of Smith. Once again, the CTA and BOI reporting were allowed to take effect, now, with a filing deadline of March 21st, 2025. Roughly a week later, FinCEN announced on February 27th that it will not take enforcement actions until interim final rules become effective. This announcement was quickly followed by the Treasury Department’s press release which indicated its future intent to limit the scope of the CTA to foreign entities with foreign owners.
While the synopsis above provides an accurate accounting of the legal history, Cadesky U.S. Tax Ltd. has consistently issued prior Tax Trends regarding the CTA and its volatility. As such, we welcome you to visit our additional posts that describe the judicial proceedings in greater detail.
How Can Cadesky U.S. Tax Ltd. Help?
Please feel free to reach out to us at usadminsupport@cadesky.com for questions on the filing requirement for your entity or assistance with submitting the online form with FinCEN.
