The Corporate Transparency Act is back in play for small businesses including those in the student transportation industry.
The U.S. Supreme Court on Thursday granted a stay of a 5th Circuit Court of Appeals decision in December that issued a temporary injunction on enforcing the law. In the hope of preventing criminals from hiding illegal acts through corporate anonymity, Congress passed the Corporate Transparency Act in 2021, sandwiched into a larger 1,482-page defense bill. The law initially took effect on Jan. 1, 2024, requiring companies to disclose stakeholder information to the Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN, by Jan. 1, 2025.
In an order that called the law outright Orwellian, however, a federal judge in Texas on Dec. 3 granted an injunction blocking the Corporate Transparency Act from being enforced — a decision that U.S. attorneys quickly appealed to the 5th Circuit, putting the fate of the act in legal limbo.
On Dec. 23, the 5th Circuit granted the government’s motion to keep the law in place through the appeal, only to reverse on Dec. 26. On Jan. 24, the U.S. Supreme Court lifted the stay, through the completion of review before the 5th Circuit.
To make matters even more confusing for business owners, the high court reviewed the government’s request to lift the stay only in the Texas case, leaving in place a second Texas case, Smith v. U.S. Department of Treasury, in which a stay remains, making current reporting voluntary.
A third federal judge in Oregon denied a similar request for an injunction in September, which will be reviewed by the 11th Circuit Court of Appeals.
The U.S. Supreme Court did not provide an explanation for granting the request for a stay — Justice Ketanyi Brown Jackson was the only dissenting voice, noting she did not see a need for the nation’s highest court to intervene because the 5th Circult already expedited its consideration of the appeal by the federal government’s appeal, which already delayed enforcement of the law by nearly four years.
Parties often ask the U.S. Supreme court to review split decisions among appeals court, but since the high court holds arguments for less than 1 percent of the cases submitted, it is impossible to know whether it will step in.
Meanwhile, FinCEN issued an alert last week clarifying the current status of Beneficial Ownership Information (BOI) reporting. While the Supreme Court lifted the injunction in the Texas Top Cop Shop case, a separate injunction in the Smith case remains, temporarily blocking CTA enforcement, FinCEN continued. The government has yet to appeal the Smith ruling.
That means companies do not have an immediate filing requirement, but voluntary filing is available.
If CTA proceeds, small businesses would have to file the required benefit ownership report very quickly. Failure to report required information could result in $591 fines per day of violation as well as up to two years in jail and up to $10,000 in penalties.
“In a limbo like this the best practice is to be ready to file,” Megan Henderson, an attorney at the Longmont, Colorado firm Lyons and Gaddis, advised last month.
Specializing in real estate and business transactions, Henderson said she spent much of the past year advising clients on becoming compliant under the Corporate Transparency Act.
Most businesses that filed paperwork with their state to become incorporated are now required to disclose their beneficial owners with the federal government, but exemptions abound. One big carve out is for larger companies generating more than $5 million in gross receipts annually. The umbrella of “beneficial owners” might be broader than some people think and covering not just owners but indispensable managers as well.
FinCEN published a brief guide to help businesses navigate the requirements. While neither a lawyer nor an accountant is required to file the paperwork, the process can seem daunting, especially for mom and pop establishments with limited time and resources.
“It’s going to impact the contractors that service the school districts,” said Chris Wojciechowski, an accountant at the Bonadio Group in Rochester, New York.
Wojciechowski said the regulation is more burdensome to small businesses with fewer resources.
“There’s such a tight timeline regarding compliance,” he continued. “So how is our businesses going to deal with this? They’re going to have to be nimble and be on top of the transition if they turn the law back on.”
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Similar legislation to the Corporate Transparency Act have already been introduced at the state level. One of the first copycat laws comes from New York lawmakers, requiring companies to report ownership by Jan. 1, 2026.
“It’s tricky because every state has their own regulations. I’ve seen companies who operate in one state come to another state and get slapped pretty hard with fines because they did not dig deep into the state regulations for school buses in that state,” said Mark Szyperski, president of On Your Mark Transportation, a consultancy firm based in Nashville, Tennessee.
For Szyperski, who grew up on the seat of his father’s Greyhound bus between Bay City and Detroit, Michigan, transportation is a family business.
Upon entering a new state, Szyperski said he often arranges to speak with the state’s school bus administrator to go over the basics. To be ready for the court’s outcome on the Corporate Transparency Act, he set up a Google alert and included news of the injunction in his newsletter.
“People need to be aware that [the injunction] could be overturned and then you best be getting ready to put the information into the system,” he said.
Ryan Gray contributed to this report.
