The Return of the CTA: FinCEN Confirms that Beneficial Ownership Information Reporting Requirements are Back in Effect with a New Deadline of March 21, 2025
On February 19, 2025, the Financial Crimes Enforcement Network (“FinCEN”) announced that beneficial ownership information reporting requirements under the Corporate Transparency Act (“CTA”) are back in effect with a new deadline of March 21, 2025 for most reporting companies. This announcement came in response to the decision made on February 17, 2025 by the U.S. District for the Eastern District of Texas in Smith v. U.S. Department of the Treasury, No. 6:24-cv-336-JDK, 2025 WL 41924 (E.D. Tex.) to stay (lift) the preliminary injunction on enforcement of the CTA.
In addition to the deadline extension of 30 calendar days from February 19, 2025, FinCEN notably stated that “in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
FinCEN did not provide any further details regarding how or when the BOI reporting rule would be revised. However, FinCEN did note that it would provide an update before the March 21, 2025 deadline “of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their BOI reporting obligations once this update is provided.” The full notice from FinCEN can be read here: FinCEN Notice, FIN-2025-CTA1, 2/18/2025.
Meanwhile, in Congress, several bills have been proposed that, if signed into law, would push the reporting deadline out still further. On February 10, 2025, the Protect Small Business from Excessive Paperwork Act of 2025, H.R. 736, co-lead by U.S. Representatives Zachary Nunn (R-IA), Sharice Davids (D-KS), Tom Emmer (R-MN) and Don Davis (D-NC), unanimously passed by the House. This bill, if passed into law, would modify the deadline for filing of initial BOI reports by reporting companies that existed before January 1, 2024 to not later than Jan. 1, 2026. On February 12, 2025, the Protect Small Business Excessive Paperwork Act of 2025 – companion legislation in the Senate that would likewise extend the filing deadline until January 1, 2026 – was introduced by U.S. Senators Katie Britt (R-AL) and Tim Scott (R-SC) and referred to the Committee on Banking, Housing and Urban Affairs.
Additionally, on January 15, 2025, another bill – the Repealing Big Brother Overreach Act – was introduced by U.S. Senator Tommy Tuberville (R-AL) in the Senate and re-introduced by U.S. Representative Warren Davidson (R-OH) in the House. This bill, if passed into law, would repeal the CTA entirely.
As noted above and in previous posts, the CTA landscape remains volatile. The Sheppard Mullin CTA Task Force will continue to monitor the various court cases, both in Texas and in other jurisdictions around the country, as well as the legislative bills that are making their way through the House and Senate, and will continue to provide updates as they become available. In the meantime, reporting companies are advised to comply with the law as it currently stands and, barring any further updates from FinCEN, should being filing BOI reports again if they have not already done so.
For background information about the CTA and its reporting requirements (including answers to several frequently asked questions), please refer to our previous blog post, dated November 5, 2024. For more information about the history of the CTA litigation mentioned above, please refer to our blog post, dated January 3, 2025.
Additional information about the CTA requirements can be found at the following FinCEN websites:
FinCEN’s website regarding beneficial ownership information
FinCEN’s Small Entity Compliance Guide
FinCEN’s BOIR Frequently Asked Questions (https://www.fincen.gov/boi-faqs)
California: Private Equity Management of Medical Practices Again Appears in Proposed Legislation
The California legislature recently introduced legislation, SB 351, that would impact private equity or hedge funds managing physician or dental practices in California. The bill is similar to a portion of California legislation from last year, AB 3129, which targeted private equity group and hedge fund management of medical practices. Last year, AB 3129 passed in the legislature but was vetoed by the Governor before becoming law. The introduction of SB 351 is part of a continuing trend in California and across the country in examining the influence of private equity investment in medical practices.
What Does SB 351 Do?
SB 351 is intended to ensure health care providers maintain control of clinical decision-making and treatment choices and to limit the influence of private equity or hedge fund influence or control over care delivery in the state.
SB 351 would codify and reinforce existing guidance relating to the prohibition on the corporate practice of medicine and dentistry. Specifically, SB 351 would prohibit a private equity group or hedge fund involved in any manner with a California physician or dental practice from interfering with professional judgment in making health care decisions or exercising control of certain practice operations.
Under the proposed legislation, prohibited activities include: determining the diagnostic tests appropriate for a particular condition; determining the need for referrals to other providers; being responsible for the ultimate care or treatment options for the patient; and determining the number of patient visits in a time period or how many hours a physician or dentist may work. Exercising control over a practice would include the following types of activities: owning or determining the content of patient medical record; selecting, hiring, or firing physicians, dentists, allied health staff, and medical assistants based on clinical competency; setting the parameters of contracts with third-party payors; setting the parameters for contracts with other physicians or dentists for care delivery; making coding and billing decisions; and approving the selection of medical equipment and supplies.
In addition, SB 351 would limit the ability of a private equity or hedge fund to restrict a provider or practice from engaging in competitive activities. SB 351 would prohibit a private equity group or hedge fund from explicitly or implicitly barring any practice provider from competing with the practice in the event of a termination or resignation of that provider from that practice. The bill would also prohibit a private equity group or hedge fund from barring a provider from disparaging, opining, or commenting on issues relating to quality of care, utilization, ethical or professional changes in the practice of medicine or dentistry, or revenue-increasing strategies employed by the private equity group or hedge fund. The California Attorney General would be entitled to injunctive relief and other equitable remedies for enforcement of the provisions of SB 351.
SB 351 contains some of the provisions that were included in AB 3129 relating to management of physician and dental practices but does not include the same breadth of limitations that were in AB 3129. Notably, SB 351 does not require the notice to and consent of the California Attorney General for certain private equity health care transactions. SB 351 also does not extend to hedge fund or private equity involvement with psychiatric practices. The scope is limited to private equity or hedge fund involvement with a physician or dental practice.
What Happens Next?
SB 351 will continue to make its way through the California legislature this year and may undergo further amendments throughout the process. Similar to AB 3129, SB 351 may garnish sufficient support to be passed by the California legislature.
The reintroduction of this legislation in California demonstrates the continuing national focus on private investment in medical practices across the country and the limitation on restrictive covenants. Management organizations and professional entities in California should review their existing arrangements to ensure compliance with applicable laws and existing corporate practice restrictions. Given the continued interest in the California legislature in addressing these issues, it may be prudent to proactively align those arrangements with the limitations in SB 351. We will continue tracking SB 351’s progress.
Recent Developments: Nationwide CTA Injunction Lifted, New March 21, 2025, Reporting Deadline Set, and Reporting Rule May Be Modified
Key Takeaways:
The Corporate Transparency Act (CTA) reporting requirements are back in effect following a Texas district court decision entered on February 18.
According to the Financial Crime Enforcement Network (FinCEN), the new general deadline for most reporting companies filing initial, updated, and corrected BOI reports is March 21and the deadline for a reporting company with a previously given later deadline is the later deadline.
In the interim, FinCEN “will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.”
FinCEN also “intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
Background:
On January 23, 2025, the United States Supreme Court (SCOTUS) reversed the U.S. district court’s preliminary injunction staying the Corporate Transparency Act (CTA) and the implementing Reporting Rule in Texas Top Cop Shop v McHenry (f/k/a Texas Top Cop Shop v Garland), Case No. 4:24-cv-00478 (E.D. Tex. 2024). For background, see our previous alerts describing the Texas Top Cop Shop district court’s December 3, 2024, opinion and order, and the Fifth Circuit’s decisions lifting and later reinstating the district court’s nationwide stay.[1]
A separate nationwide stay of the CTA Reporting Rule issued on January 7, 2025, by another Texas district court in Smith v U.S. Department of Treasury, Case No. 6:24-cv-00336 (E.D. Tex. Jan 7, 2025) was not affected by the SCOTUS order in Texas Top Cop Shop and remained in effect.[2]
On January 24, 2025, FinCEN published an updated alert acknowledging that, in light of the continuing effect of the nationwide stay in Smith, reporting companies were at that time not required to report beneficial ownership information but could do so voluntarily.[3]
On February 5, 2025, the Department of Justice (DOJ) appealed the Smith nationwide stay to the Fifth Circuit and filed a motion with the Smith district court asking it to lift that stay in view of the SCOTUS order in Texas Top Cop Shop. DOJ stated that, if lifted, FinCEN intended to extend reporting deadlines for 30 days and, during that period, evaluate whether to revise reporting requirements on “low-risk” entities and prioritize enforcement on the “most significant national security risks.”
On February 6, 2025, FinCEN published a new alert acknowledging the DOJ’s pending appeal in Smith and motion requesting the district court to lift the stay in Smith. FinCEN also confirmed its intention, if the stay was lifted, to extend the reporting deadline by 30 days and to assess options to modify further reporting deadlines for “lower-risk” entities during the 30-day period.
Smith District Court Lifts Stay of CTA Reporting Rule:
On February 18, 2025, the Smith district court stayed the preliminary relief granted in its January 5, 2025, order, including the nationwide stay of the CTA Reporting Rule, pending disposition of the Smith appeal to the Fifth Circuit.[4]
CTA Reporting Requirements Back in Effect:
On February 19, 2025, FinCEN published an updated alert stating that, in view of the Smith district court’s decision, “beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are once again back in effect.” FinCEN generally extended the deadline for most reporting companies filing initial, updated and corrected BOI reports to March 21, 2025 (30 calendar days from February 19, 2025). FinCEN also stated that “during this 30-day period, FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks” and that “FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” At the same time, FinCEN also updated two other alerts with respect to Texas Top Cop Shop and National Small Business United v Yellen.[5]
FinCEN Updated CTA Reporting Deadlines:
The updated deadlines, as set forth in the FinCEN updated alert, follow:
For the “vast majority” of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is March 21, 2025. FinCEN also stated that it will provide an update before that deadline of any further deadline modifications, recognizing that more time may be needed to meet BOI reporting obligations.
For reporting companies that were previously given a reporting deadline later than the March 21, 2025, the applicable deadline is that later deadline. FinCEN included as an example, “if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.”
FinCEN also noted that the plaintiffs in National Small Business United v. Yellen are not currently required to report their beneficial ownership information to FinCEN. See FinCEN alert “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”.
For additional information, see the FinCEN February 19, 2025, updated Alert, Beneficial Ownership Information Reporting | FinCEN.gov], and FinCEN Notice, FIN-2025-CTA1, FinCEN Extends Beneficial Ownership Information Reporting Deadline by 30 Days; Announces Intention to Revise Reporting Rule (February 18, 2025).
If you have questions about your CTA-related engagement with the firm, please contact your Miller Canfield lawyer for further guidance.
[1] Corporate Transparency Act: Miller Canfield
[2] See the Smith district court’s opinion and order here: [Smith et al v. United States Department of The Treasury et al, No. 6:2024cv00336 – Document 30 (E.D. Tex. 2025).]
[3] The current FinCEN Alerts can be found here [Beneficial Ownership Information Reporting | FinCEN.gov.]
[4] gov.uscourts.txed.232897.39.0.pdf
[5] [Beneficial Ownership Information Reporting | FinCEN.gov]
The CTA Strikes Back
Following a cascade of developments, the Corporate Transparency Act (CTA) is back, but with some potential changes on the horizon. Most reporting companies that have not yet filed all required reports under the CTA should prepare to file their initial, updated, or corrected reports by March 21, 2025.
In our recent alert on the CTA, we noted that the US Court of Appeals for the Fifth Circuit on December 26 reinstated a nationwide injunction prohibiting the government from enforcing the CTA. That injunction was stayed by the US Supreme Court on January 23, but a district court order in another case, Smith v. US Department of the Treasury, kept the CTA offline.
Court Orders the CTA Back into Effect
By an order dated February 17, however, the final district court order in the Smith case that was preventing the CTA’s enforcement was lifted by the US District Court for the Eastern District of Texas. As a result, beneficial ownership information (BOI) reporting requirements under the CTA are now back in effect.
FinCEN’s Response
In response, the Financial Crimes Enforcement Network (FinCEN) issued a notice stating that the new deadline for most reporting companies to file an initial, updated, or corrected BOI report is now March 21, 2025. Reporting companies that were previously given a reporting deadline later than March 21 (such as those qualifying for certain disaster relief extensions or those that were formed in late December 2024) have until that later deadline to file their initial BOI reports.
FinCEN’s notice further states that the government, recognizing that reporting companies may need additional time to comply with their BOI reporting obligations, will provide an update before March 21 of any further modifications to this deadline. FinCEN also observes that it will initiate a process this year to revise the BOI reporting rule to reduce burdens for “lower-risk entities,” including many US small businesses, although the notice does not go into detail on what companies might fall within that category or what changes may be contemplated.
Potential Future Court Action?
While it is possible that a court may find the CTA to be unconstitutional or otherwise stay its enforcement once again, there are no guarantees that this will occur (if at all) before the new March 21 deadline.
Potential Legislative Action?
There also remains the possibility of legislative action. On February 10, the US House of Representatives unanimously passed a bill, H.R. 736 (the Protect Small Businesses from Excessive Paperwork Act of 2025), to extend the filing deadline to January 1, 2026, for reporting companies formed before January 1, 2024. That bill is now under consideration in the US Senate, although, as of the publication of this alert, there is no indication of whether or when there may be further action on the bill in the Senate.
What Now?
In light of these developments, reporting companies should resume their CTA compliance efforts to file the requisite BOI reports by March 21 (or, as applicable, a later reporting deadline for those reporting companies that were previously given a reporting deadline later than March 21).
Client Alert- Corporate Transparency Act Is Back in Effect – Another Major Update
As has now been well reported, in 2021 Congress enacted the Corporate Transparency Act (the “CTA”), which empowers the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to collect information about “Beneficial Owners” of certain privately held entities for the purpose of deterring illicit activities through the operation of shell corporations and LLCs.
Entities formed on or after Jan. 1, 2024, that are subject to the CTA were to disclose to FinCEN information about their Beneficial Owners within 90 days of formation or any change for entities (Beneficial Ownership Interest Reports or “BOIR”). Entities formed prior to Jan. 1, 2024, were to have until Dec. 31, 2024, to file BOIRs. However, in the latter part of 2024, a series of lawsuits were brought challenging the constitutionality of the CTA; they have served to delay the reporting requirements of the CTA and have created confusion and uncertainty regarding the CTA for more than 30 million entities.
The most recent event occurred on Feb. 17, 2025, when the U.S. District Court for the Eastern District of Texas, Tyler Division issued a decision in Smith, et al. v. U.S. Department of the Treasury, et al., lifting the stay the Court had ordered on Jan. 7, 2025, that prevented FinCEN from enforcing the BOIR requirements on a nationwide basis.
In view of this decision, FinCEN issued guidance on Feb. 18, 2025, stating that the requirement to file BOIRs under the CTA is once again back in effect. For the vast majority of reporting companies, the new deadline to file an initial, updated, and/ or corrected BOIR is now March 21, 2025. FinCEN indicated that it will provide an update before then of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their reporting obligations once this update is provided.
The following chronology of events leading up to Feb. 18 underscores the confusion surrounding the CTA:
On Dec. 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. Garland, et al., the U.S. District for the Eastern District of Texas, Sherman Division, issued an order prohibiting the federal government from enforcing the CTA anywhere in the country. The Court determined that the CTA was likely unconstitutional, and that its implementation would irreparably harm companies if they were forced to comply.
On Jan. 7, 2025, in the case of Smith case, the U.S. District Court for the Eastern District of Texas, Tyler Division, issued an order enjoining the government from enforcing the CTA against the plaintiffs and staying FinCEN’s regulations relating to the implementation of the CTA’s reporting requirements.
On Jan. 20, 2025, President Trump signed an Executive Order titled “Regulatory Freeze Pending Review,” which provides in part:
“I hereby order all executive departments and agencies to take the following steps:
(1) Do not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.”
The impact of this Order on FinCEN’s ability to issue new filing deadlines is uncertain.
On Jan. 23, 2025, the U.S. Supreme Court stayed (i.e., halted) the injunction issued in the Texas Top Cop Shop decision but did not address the injunction in
On Jan. 24, FinCEN issued the following:
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force… However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
On Feb. 5, 2025, the federal government filed an appeal in the Eastern District of Texas challenging the injunction in Smith based on the Supreme Court’s ruling in Texas Top Cop Shop. FinCEN has indicated that if the remaining nationwide injunction in Smith is stayed, it intends to resume enforcement of the CTA and extend the reporting deadline by at least 30 days from the issuance of the stay.
On Feb. 10, 2025, the House of Representatives unanimously passed R. 736 — 119th Congress (2025-2026), the Protect Small Business from Excessive Paperwork Act of 2025. This bill would require reporting companies formed or registered before Jan. 1, 2024, to submit reports to FinCEN by Jan. 1, 2026, instead of by Jan. 1, 2025.
Prior to the above- mentioned Court decision on Feb. 17, some entities were taking take a “wait and see approach,” taking the risk of having to make a filing quickly. Other entities were more proactive and made a voluntary filing. With the February Court decision and FinCEN’s resulting position, a “wait and see approach” is no longer an option, at least not for now. But uncertainty regarding the ultimate fate of the CTA remains in view if the Executive Order described above and the possibility that the U.S. Supreme Court may rule on its constitutionality.
Stay tuned!
NewsBank Hit with Class Action over Employee Data Breach
Last week, a class action was filed against NewsBank, Inc., a Florida-based news database company, related to a 2024 breach of employee personal information.
NewsBank provides a database of archived news publications utilized by libraries, higher education institutions, and other organizations. NewsBank suffered a security incident affecting its employees’ personal information between June and July 2024.
The lead plaintiff claims that, as an employee of NewsBank from January 2023 to November 2024, they were required to provide their personal information (i.e., name, date of birth, Social Security number, and financial account information) as part of their employment.
The lead plaintiff alleges they now face a heightened risk of identity theft due to the breach. The complaint states, “Plaintiff and class members must now and for years into the future closely monitor their medical and financial accounts to guard against identity theft. The risk of identity theft is not speculative or hypothetical but is impending and has materialized as there is evidence that the plaintiff’s and class members’ private information was targeted, accessed, has been misused, and disseminated on the dark web.” The lawsuit alleges claims of negligence, breach of implied contract, and breach of fiduciary duty.
Additionally, the lawsuit alleges that NewsBank failed to follow its policies, including those outlined in its website Privacy Policy, stating that NewsBank had implemented security procedures to protect personal information from unauthorized access, use, and disclosure.
The class seeks over $5 million in damages and injunctive relief, requiring NewsBank to implement enhanced security measures and provide affected individuals with lifetime identity theft protection services. The complaint alleges that “[o]nce private information is exposed, there is virtually no way to ensure that the exposed information has been fully recovered or contained against future misuse [. . . ] For this reason, plaintiff and class members will need to maintain these heightened measures for years, and possibly their entire lives, as a result of defendant’s conduct.”
DOJ Gun-Jumping Complaint Highlights Importance of Careful Preparation of Interim Operating Covenants to Avoid HSR Act Violations
A recent civil complaint from the U.S. Department of Justice (DOJ) highlights the importance of carefully planning interim operating covenants in M&A deals and structuring the process to prevent buyers from gaining control of targets too soon—before the mandatory waiting period under the Hart-Scott-Rodino Act (HSR Act) is up. This is commonly referred to as “gun-jumping.”
On January 7, 2025, the DOJ filed a complaint for civil penalties and equitable relief for violations of the HSR Act against Verdun Oil Company II LLC (Verdun), XCL Resources Holdings, LLC (XCL), and EP Energy LLC (EP Energy) for gun-jumping in Verdun’s and XCL’s $1.4 billion acquisition of EP Energy, a crude oil production company operating in Utah and Texas. The DOJ alleges that between the execution of the transaction’s purchase agreement in July 2021 and October 2021, when the purchase agreement was amended to restore EP Energy’s operational independence, EP Energy allowed Verdun and XCL, Verdun’s sister company, (i) to exert premature operational and decision-making control over significant aspects of EP Energy’s day-to-day business, (ii) to assume financial risks within EP Energy’s business, (iii) to obtain competitively sensitive information, (iv) to engage directly with customers and vendors in contract negotiations, and (v) to coordinate anti-competitive pricing and supply chain disruptions, all prior to the expiration of the waiting period obligations under the HSR Act.
Even though EP Energy, Verdun, and XCL filed the required pre-merger HSR filings with the Federal Trade Commission and the DOJ, the complaint alleges that the purchase agreement granted the buyers too much control during the waiting period because of consent rights that placed key aspects of EP Energy’s business under their control. The purchase agreement also allegedly required buyers’ express approval to conduct development operations, which prevented EP Energy from continuing its oil well-development activities and production plans, and to hire field-level employees and contractors necessary for drilling and production in its ordinary-course operations. The purchase agreement also allegedly made the buyers responsible for any financial risk and liabilities tied to the restrictions, further suggesting they were gaining effective control over the company.
In addition, XCL and Verdun allegedly took an active “boots on the ground” approach to taking over EP Energy’s operations prior to the closing of the transaction and the expiration of the HSR waiting period, allegedly coordinating with EP Energy on customer contracts, relationships, and deliveries, in addition to coordinating on pricing terms offered to customers. In assuming the operational control of EP Energy, the buyers were allegedly granted access to confidential and competitively sensitive information to include details on customer contracts, pricing, production volumes, and vendor contracts.
As a result of these allegations, XCL, Verdun, and EP Energy are facing civil fines in excess of $5.6 million.
When structuring a deal, it’s important to account for the HSR clearance timeline and closely monitor the activities between the buyer and the target. All parties involved need to know what’s okay to do before the deal closes, especially when it comes to making decisions and taking control of operations. For example, deal teams should avoid having buyers negotiate on behalf of the target with customers or vendors, and be very careful with handling sensitive competitive information to prevent anti-competitive concerns. That info should be shared carefully, using “clean team” safeguards or data rooms to keep it under control.
While these tips are general best practices for any transaction, deal teams should address and tailor HSR, anti-competition, and purchase agreement interim operating covenant considerations on a deal-by-deal and client-by-client basis.
Resources:
U.S. Department of Justice, Press Release, Oil Companies to Pay Record Civil Penalty for Violating Antitrust Pre-Transaction Notification Requirements (Jan. 7, 2025), https://www.justice.gov/archives/opa/pr/oil-companies-pay-record-civil-penalty-violating-antitrust-pre-transaction-notification.
United States v. XCL Resources Holdings, LLC, No. 25-cv-00041 (D.D.C. Jan. 7, 2025).
Corporate Transparency Act Back in Effect and Extended Deadline
On February 18, 2025, the U.S. District Court for the Eastern District of Texas lifted the nationwide injunction it had previously issued against the enforcement of the Corporate Transparency Act (CTA).1 As a result, the CTA reporting requirements are effective again.
In response, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has extended the deadline for most reporting companies by 30 days, moving the new deadline to March 21, 2025. Reporting companies that were granted later deadlines—such as those with disaster relief extensions to April 2025—should continue to follow their original deadlines. Unlike prior deadlines, there is no distinction between companies formed before or after January 1, 2024 in terms of the deadline.
During this 30-day period, FinCEN will assess the possibility of further deadline changes and focus on prioritizing reporting from entities that pose higher national security risks. Additionally, FinCEN plans to revise the BOI reporting rule later this year to reduce the administrative burden on lower-risk businesses, including many small U.S. businesses.
However, it is unclear whether any changes will occur before the March 21, 2025 deadline.
What This Means for Your Reporting Company:
The CTA reporting requirements are back in effect.
If you do not have significant business or privacy concerns, you should submit your filings now.
If you have concerns, prepare your materials to file closer to the deadline if no updated guidelines or deadlines are issued.
New deadline for companies: March 21, 2025 (unless your reporting company has a later deadline).2
1 Background on Court Cases:
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al. On January 23, 2025, the Supreme Court ordered that the injunction be lifted.
On January 7, 2025, the same U.S. District Court issued another nationwide injunction in Smith v. U.S. Department of the Treasury. On February 18, 2025, the court lifted its injunction. With no more nationwide injunctions in place, the CTA came back into effect. The Department of Justice has filed an appeal, and the injunction will remain lifted until the appeal is completed.
2 The CTA is still not being enforced against the plaintiffs in National Small Business United v. Yellen.
State Attorneys General Point to Ways DEI Programs Can Stay Within Legal Boundaries
The attorneys general of sixteen states recently released guidance explaining how diversity, equity, and inclusion (DEI) programs in the private sector can remain viable and legal. This guidance came shortly after President Donald Trump issued two executive orders targeting “unlawful DEI” programs in the federal government, federal contractors, and federal fund recipients, and directed the U.S. attorney general to investigate “unlawful DEI” programs in the private sector.
Quick Hits
The attorneys general of sixteen states signaled to private employers that their DEI programs can remain legal, if designed and implemented correctly under applicable laws.
The guidance came in response to President Trump’s executive orders to stop DEI “mandates, policies, programs, preferences, and activities” in the federal government and “unlawful DEI” programs by federal contractors and federal money recipients.
The guidance reiterates that racial and sex-based quotas and unlawful preferences in hiring and promotions have been illegal for decades under Title VII of the Civil Rights Act of 1964.
On February 13, 2025, the attorneys general of Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, and Vermont issued guidance stating DEI programs are still legal when structured and implemented properly.
State laws prohibiting employment discrimination based on race or sex vary in scope. Some of them go beyond the protections in the federal antidiscrimination laws.
While noting that race- and gender-based preferences in hiring and promotions have been unlawful for decades, the new guidance provides myriad legally compliant strategies for employers to enhance diversity, equity, and inclusion in the workplace, such as:
prioritizing widescale recruitment efforts to attract a larger pool of job candidates from a variety of backgrounds;
using panel interviews to help eliminate bias in the hiring process;
setting standardized criteria for evaluating candidates and employees, focused on skills
and experience;
ensuring accessible recruitment and hiring practices, including reasonable accommodations as appropriate;
ensuring equal access to all aspects of professional development, training, and mentorship programs;
maintaining employee resource groups for workers with certain backgrounds or experiences;
providing employee training on unconscious bias, inclusive leadership, and disability awareness; and
maintaining clear protocols for reporting discrimination and harassment in the workplace.
“Properly developed and implemented initiatives aimed at ensuring that diverse perspectives are included in the workplace help prevent unlawful discrimination,” the guidance states. “When companies embed the values of diversity, equity, inclusion, and accessibility within an organization’s culture, they reduce biases, boost workplace morale, foster collaboration, and create opportunities for all employees.”
Next Steps
A group of diversity officers, professors, and restaurant worker advocates has filed suit to challenge President Trump’s executive orders on DEI. Other groups have brought similar lawsuits. It is unclear what impact the challenges to the executive orders will have in light of enforcement efforts.
With the executive orders and leadership shifts at the U.S. Equal Employment Opportunity Commission, the Trump administration has signaled a change in federal enforcement priorities that could make private-sector lawful DEI efforts more risky from a legal standpoint.
Private employers may wish to review their existing DEI programs and policies to ensure compliance with federal and state antidiscrimination laws. In some cases, employers may be able to keep the legally compliant parts of their DEI programs while adjusting or eliminating certain parts that the Trump administration could consider unlawful.
Ogletree Deakins will continue to monitor developments and will provide updates on the Diversity, Equity, and Inclusion, Employment Law, and State Developments blogs as new information becomes available.
CTA Back in Action: FinCEN’s New BOI Report Deadline March 21, 2025
Highlights
The U.S. District Court for the Eastern District of Texas granted a stay of its earlier injunction that suspended enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting rule
FinCEN is once again permitted to enforce reporting obligations under the CTA to file BOI reports
FinCEN providing a 30-day extension of BOI reporting deadline to March 21, 2025
Continuing a series of rapid-fire legal developments regarding the Corporate Transparency Act (CTA), on Feb. 18, 2025, the U.S. District Court for the Eastern District of Texas issued a stay of its own Jan. 7, 2025 injunction prohibiting the Financial Crimes Enforcement Network’s (FinCEN) implementation of Beneficial Ownership Information (BOI) reporting requirements, which precluded FinCEN from requiring BOI reporting or otherwise enforcing the CTA’s requirements.
As a result of the new stay, reporting obligations and deadlines under the CTA can be enforced by FinCEN.
FinCEN issued a Feb. 18 notice updating the BOI report filing deadlines, including an initial BOI report filing deadline of March 21, 2025. FinCEN clarified its various deadlines as follows:
For the vast majority of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025.
Reporting companies previously given a reporting deadline later than the March 21, 2025, deadline are required to file their initial BOI report by such later deadline. For example, if a company’s reporting deadline was extended to April 2025 as a result of certain disaster relief extensions, it should continue to follow the April deadline.
Plaintiffs in National Small Business United v. Yellen are not currently required to report their beneficial ownership information to FinCEN.
FinCEN summarized the impact of the newest stay as follows: “Given this decision, FinCEN’s regulations implementing the BOI reporting requirements of the CTA are no longer stayed. Thus, subject to any applicable court orders, BOI reporting is now mandatory, but FinCEN is providing additional time for companies to report.” FinCEN is empowered to enforce the CTA, its BOI reporting rule and all applicable deadlines until the pending appeal is completed.
To recap recent developments:
Dec. 3, 2024 – The U.S. District Court for the Eastern District of Texas issued a nationwide injunction enjoining enforcement of the CTA, suspending all reporting obligations under the act (Texas Top Cop Shop, Inc. v. McHenry – formerly, Texas Top Cop Shop v. Garland). This order was amended Dec. 5, 2024.
Dec. 23, 2024 – The motions panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court injunction. The stay by the Court of Appeals restored initial reporting deadlines for reporting companies. FinCEN responded by issuing an alert extending initial reporting deadlines.
Dec. 26, 2024 – The merits panel of the Fifth Circuit vacated the stay issued by its motions panel, restoring the district court’s injunction and suspending reporting obligations under the CTA pending resolution of the appeal.
Dec. 31, 2024 – The Department of Justice filed an application for stay with the U.S. Supreme Court requesting that the Dec. 5 injunction be stayed or narrowed while the case proceeds through the Fifth Circuit.
Jan. 7, 2025 – The U.S. District Court for the Northern District of Texas issued a second nationwide injunction enjoining enforcement of the CTA, suspending all reporting obligations under the CTA (Smith v. U.S. Department of the Treasury).
Jan. 23, 2025 – The U.S. Supreme Court granted a stay of the Dec. 3rd injunction pending the disposition of the Texas Top Cop Shop appeal before the Fifth Circuit and the disposition of a petition for a writ of certiorari and related final judgment.
Feb. 18, 2025, the U.S. District Court for the Eastern District of Texas agreed to stay its Jan. 7, 2025, order until the appeal in the Smith case is completed.
FinCEN, in its notice published Feb. 19, 2025, clarified that the agency may, nevertheless, extend certain deadlines and change the BOI reporting obligations for certain low-risk entities, like small businesses. FinCEN noted that, “in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
It may be the case that in the coming month FinCEN again extends or modifies the applicable reporting deadlines for initial and updated BOI reports. In addition, the U.S. House of Representatives unanimously passed a bill that would extend the filing deadline for a majority of entities to Jan. 1, 2026. A similar Senate bill has been introduced but, as of the date of this alert, had not been passed.
CTA Reporting Requirements Reinstated and Beneficial Ownership Reports Due March 21, 2025 for Most Reporting Companies
The beneficial ownership information reporting requirements of the Corporate Transparency Act (CTA) are now back in force. As described in more detail below, the majority of Reporting Companies are required to file their initial, amended, or corrected beneficial ownership information reports (BOIRs) by March 21, 2025, absent any subsequent legal developments.
On February 17, 2025, the US District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., Case No. 6:24-cv-00336 (E.D. Tex.), stayed a preliminary injunction enjoining the Reporting Rule containing compliance deadlines to file BOIRs. This order removed the final hurdle (for now) blocking the CTA’s reporting deadlines and requirements.
As previously indicated, the Financial Crimes Enforcement Network (FinCEN) extended a 30-day grace period for Reporting Companies to file BOIRs. Specifically, on February 19, 2025, FinCEN published an official notice stating that FinCEN is generally extending the reporting deadline for most Reporting Companies that were previously required to file BOIRs, but have not already done so, to March 21, 2025. FinCEN also noted that (a) during this period FinCEN would “assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks,” and (b) it intends to revise the CTA’s Reporting Rule to reduce burdens for lower-risk, small business entities. Note that, in parallel, there are several bills pending in Congress to repeal the CTA and to extend certain reporting deadlines to January 2026. As there can be no guarantee that FinCEN will further extend the grace period, or that a subsequent legal development will once again intervene with the enforcement of the CTA, Reporting Companies should prepare to file their BOIRs by March 21, 2025.
A copy of the official FinCEN notice may be accessed here.
Scott Vetri and Walter Weinberg contributed to this article
Is Your Nonprofit Slashing Benefits to Offset Federal Funding Cuts?
Use Caution When Responding to the Recent Executive Orders
On February 6, 2025, the Trump administration (the Administration) issued an executive order (the Review Order) directing the heads of Federal executive departments and agencies (Agencies) to review all funding the Agencies provide to “Nongovernmental Organizations.”[1] The Agencies were further ordered to align all future funding decisions with the interests of the United States and the Administration’s goals and priorities.
The Administration’s issuance of the Review Order, when coupled with an earlier executive order (the Funding Order) freezing federal spending on grants, loans, and other initiatives,[2] has shaken the nonprofit community by threatening the funding of nonprofit organizations both in the United States and around the world. Nonprofit organizations are now weighing their options for managing the potential impact the Funding Order and the Review Order may have on their operations and finances.
While some nonprofit organizations may turn to layoffs or furloughs as a means of cost-cutting,[3] others may consider reducing employer contributions to their employee benefit plans to stay afloat while the funding fight plays out. Like for-profit employers, nonprofit employers recognize the important role generous benefits play in hiring and retaining talented employees, and understand that reducing benefits mid-year is not a decision to be taken lightly. This article discusses some of the compliance challenges nonprofits may face if they elect to do so.
Health Care Plans
Nonprofit employers (like other employers) typically set the employee contribution levels for their health and welfare plans for the full plan year and don’t adjust those levels until the next year. As a result, if an employer wants to increase employee contributions during the plan year, it must make such changes carefully.
Plan Amendments and Employee Notifications:
A nonprofit employer should work with its third-party administrator and/or legal counsel to amend the terms of its health plan documents to implement any planned increase in employee contributions. In determining the effective date of any changes, the employer should consider both when it must notify its employees of the change and how best to do so.
SPDs and SMMs. Under ERISA, employers must provide retirement and welfare benefit plan participants[4] with a “summary plan description” (SPD) describing the terms of their plans in a way that is straightforward and understandable to participants. If an employer amends an ERISA benefit plan in a way that materially modifies the SPD, it must provide plan participants with a “summary of material modifications” (SMM) describing the change. Generally, an SMM must be provided to plan participants within 210 days after the end of the plan year in which the employer adopted the change.
Different timing rules apply, however, if the employer amends a health or welfare plan to materially reduce the plan’s “covered services or benefits.” A material reduction in covered services or benefits may occur due to increases in “premiums, deductibles, coinsurance, copayments, or other amounts to be paid by a participant or beneficiary.”[5] When an employer amends a health or welfare plan to materially reduce the plan’s covered services or benefits, it must provide plan participants with an SMM describing the change within 60 days after adopting that change.
SBCs. Sometimes, an employer may also be required to provide participants and beneficiaries with advance notice of a change to the employer’s health plan. Under the Patient Protection and Affordable Care Act (the ACA), an employer must provide its employees with a “Summary of Benefits and Coverage” (an SBC), an easy-to-understand summary of each coverage offered under the employer’s health plan. If a material modification to a health plan affects the content of the plan’s SBC, the employer must provide participants and beneficiaries with advance notice of the change – at least 60 days before the date on which the change becomes effective.
Cafeteria Plan Elections:
Even if an increase in employee premium contributions doesn’t affect a health plan’s SBC, from a practical standpoint, an employer will likely want to give plan participants advance notice of any premium increase. This will allow the employer to provide context for the increase, and if permitted under the employer’s Code §125 or “cafeteria” plan, to communicate to employees their ability to make new benefit elections under that plan.
A cafeteria plan allows employees to purchase (or pay the cost of) certain welfare benefits (such as premiums for group health benefits, group life and AD&D coverage, dependent care assistance, etc.) on a pre-tax basis. To receive that benefit, however, employee elections must be made during open enrollment (before the beginning of the applicable plan year) and are generally irrevocable for the entire year.
Employees may be permitted to change their elections, however, if they experience certain “change in status” events, such as marriage, birth/adoption of a child, etc. They may also be permitted to change prior elections because of a “significant” change in cost or coverage.[6] Whether a change in cost or coverage is significant is based on the relevant facts and circumstances, including the relative impact on the employee population, prior cost increases, etc. If increasing employee health care premium contributions is deemed “significant,” employees must be given the opportunity to change their prior health care elections.
Potential ACA Penalties:
If employees are permitted to change their health care elections due to an increase in their health care premium contributions, they may elect to drop a nonprofit employer’s health care coverage entirely. This could lead to unintended consequences for the employer. For instance, if after dropping the employer’s health care coverage, the employee then obtains alternate coverage on a state ACA marketplace and qualifies for a premium subsidy (because the employer’s coverage is now deemed to be unaffordable), the employer could be subject to ACA penalties.
Tax-Qualified Retirement Plans
Code §401(k) and §403(b) Plans:
A nonprofit employer may elect to offer its employees access to a Code §401(k) plan, a §403(b) plan, or (in some cases) both, to allow them to save for their retirements.[7] Nonprofits may provide employer nonelective or matching contributions as an additional benefit to their employees. If, as a cost-cutting measure, a nonprofit wishes to reduce its employer contributions to such a plan, it should look first to the plan’s terms.
Discretionary Contributions. If the plan grants the employer discretion to determine whether nonelective/matching contributions will be made each year, a plan amendment won’t be needed. The employer can simply reduce – or suspend entirely – its contributions going forward. (Note that any such change would need to be made prospectively.)
Because no plan amendment is required, technically, the employer would not be obligated to notify employees of the change. However, open communication with employees about the reduction/suspension is probably the better option, as it will allow the employer to explain the rationale for the change. Employees, for their parts, may want to adjust their own elective deferrals because of the reduction/suspension of employer contributions.
Fixed Rate of Contributions. If the plan specifies the rate of employer nonelective or matching contributions, the employer will need to amend the plan to implement a reduction/suspension of those contributions.
Advance notice of the amendment isn’t required in this case, but the employer will be obligated to provide plan participants with an SMM. While the SMM isn’t due until 210 days after the end of the plan year in which the amendment is adopted, again, a nonprofit employer should consider whether communicating the change sooner rather than later (by providing the SMM to participants as soon as possible or by other means) makes sense under the circumstances.
“Safe Harbor” Plans. A “safe harbor” §401(k) or §403(b) plan will be deemed to pass certain nondiscrimination testing requirements, if the sponsoring employer satisfies various contribution and participant notice requirements.
If an employer makes “safe harbor” matching contributions on behalf of participants, it may amend its plan to reduce/suspend those contributions mid-year if:
The employer is “operating at an economic loss” during the plan year; or
For any reason, if the “safe harbor” notice provided annually to plan participants includes a statement allowing the employer to reduce or suspend the “safe harbor” matching contributions during the year.
The plan amendment may take effect no earlier than 30 days after the employer provides employees with a supplemental “safe harbor” notice describing the reduction/suspension of employer contributions.
Employers that use a pre-approved plan format should contact their plan vendors for help in preparing the needed amendment (working with their legal counsel as needed) and in coordinating the amendment’s effective date with the distribution of the supplemental “safe harbor” notice.
An employer that makes “safe harbor” nonelective contributions on behalf of plan participants may also amend its plan to reduce or suspend those contributions. While such employers are generally no longer required to provide an annual safe harbor notice (per the Setting Every Community Up for Retirement Enhancement (SECURE) Act), employers should still consider providing employees with timely notice of the change.
SMMs Required. Even if an employer must notify plan participants in advance of the reduction/suspension of employer “safe harbor” contributions (through the provision of a supplemental “safe harbor” notice), the employer will also need to provide participants with an SMM describing the change within the timeframe discussed above.
Non-Qualified Deferred Compensation Plans
Code §457(b) and §457(f) Plans:
A tax-exempt nongovernmental nonprofit[8] may establish a Code §457(b) plan to permit a select group of its highly-compensated or management employees to set aside additional funds towards their retirement (in excess of the amounts contributed to a Code §401(k) or §403(b) plan). Nonprofit employers may also make contributions on behalf of Code §457(b) plan participants.
In order to defer immediate taxes on those employer and employee contributions, a Code §457(b) plan must meet certain requirements, such as limits on annual contributions (combined between employee and employer contributions), timing of distributions, etc. Nonqualified deferred compensation plans that do not meet the requirements of Code §457(b) (typically because total contributions to the plan exceeds the annual contribution limit) are classified as Code §457(f) plans. (Together, this article refers to such plans as “457 Plans.”)
Amendment Needed? Like §401(k) and §403(b) plans, whether a 457 Plan must be amended to reduce/suspend the employer’s rate of contributions (if any) will depend on whether the plan documents give the employer discretion to determine its contributions each year, or whether such language is baked into the plan document. If a 457 Plan grants the employer total discretion to make contributions, no amendment will be needed. If the 457 Plan contains language describing the employer’s level of contributions, however, the 457 Plan will need to be amended if the employer wishes to reduce/suspend employer contributions.
No SMM Needed. Even if an amendment is needed (because the 457 Plan document specifies that the nonprofit employer will make a particular level of employer contributions), the employer is not required to provide 457 Plan participants with an SMM. Because participation in 457 Plans is limited to a small group of (at least presumably) financially-sophisticated employees, 457 Plans are considered “top-hat” plans. Top-hat plans are not subject to ERISA’s disclosure rules,[9] including its requirement to provide an SPD to participants or to update that SPD with an SMM any time the plan is materially modified.
Even so, given that participants in the 457 Plan will likely include the nonprofit’s senior executives and staff, a nonprofit amending its 457 Plans to reduce/suspend employer contributions will likely wish to be open with participants about the changes to its contributions and the rationale behind those changes.
Benefits in Employment Agreements. A nonprofit employer’s ability to amend a 457 Plan may be limited if the grant of benefits under the 457 Plan is only documented in an eligible participant’s employment agreement.[10] In that case, any amendment to the employer’s obligation to contribute to the arrangement will be subject to the terms of the employment agreement, and, as a result, may be subject to the employee’s approval.
Code §409A Issues. Code §457(b) plans are exempt from the requirements of Code §409A, while Code §457(f) plans) are not. Code §409A imposes stringent rules on both the timing of payment and changes to the timing of payment under nonqualified deferred compensation arrangements.[11] Failure to meet Code §409A’s requirements can result in significant penalties to the employee (and result in information reporting failures for the employer). While the reduction/suspension of employer contributions to a Code §457(f) plan probably won’t implicate Code §409A, a nonprofit employer should consult with its tax advisor or legal counsel before making any changes to such plans.
FOOTNOTES
[1] The Review Order doesn’t specifically define what a “Nongovernmental Organization” is. However, given the broad scope of the Review Order, it seems reasonable to assume the term includes any nonprofit organization accepting federal funds.
[2] The Funding Order was challenged in Federal court by Democratic Attorneys General in 22 states and the District of Columbia. Although the District Court hearing that challenge found that a “broad categorical and sweeping freeze of federal funds” was “likely unconstitutional,” the fight to force the Administration to resume payments for federal programs is ongoing.
[3] Nonprofits considering layoffs or furloughs as a means of saving funds should review our prior article about the impact of employer furloughs on employee benefits. While written at the beginning of the COVID-19 pandemic, the article provides helpful guidance to nonprofits navigating the potential effects a furlough or layoff may have on their workforce’s benefits. Be aware, however, that the COVID-19 relief programs mentioned in that article no longer apply.
[4] Beneficiaries receiving benefits under the plan are also entitled to receive an SPD.
[5] See 29 CFR §2520.104b-3(d)(3).
[6] See 26 CFR §1.125-4(f).
[7] While some nonprofits may offer defined benefit pension plans to their employees, this is not as common as in the past. As a result, we have not discussed changes to such plans in this article. However, additional information about such changes can be found here.
[8] For clarity, this article discusses the rules applicable to Code §457(b) and §457(f) plans maintained by non-governmental, tax-exempt nonprofit organizations. Different rules may apply to Code §457(b) plans maintained by governmental entities.
[9] They are, however, subject to certain other provisions of ERISA, such as ERISA’s claims and appeals procedures.
[10] This happens occasionally, especially where only a single employee is receiving a 457 Plan benefit. The better practice is to mention the 457 Plan in the employee’s employment agreement, while documenting the 457 Plan arrangement separately.
[11] A discussion of the parameters of Code §409A is outside the scope of this article. Consider yourself lucky.