Owner-operators who thought they had heard the last of beneficial ownership information reporting may want to hold that thought. After a dizzying series of court orders and federal rule changes appeared to put the issue to rest for U.S. small businesses, a new lawsuit seeks to bring the requirement back.
A coalition of 20 states and the District of Columbia are suing the Treasury Department in a federal district court. The states want the court to throw out rules that exempted all U.S. companies from reporting, and to stop the federal government from deleting reports small businesses already filed.
It has been more than a year and a half since U.S. small businesses were taken off the hook for reporting beneficial ownership information. For many, the requirement is a distant memory.
What is beneficial ownership information, again?
Considering how much of a headache it caused, business owners may have wiped beneficial ownership information reporting from their memory, so let’s recap what led to the lawsuit.
Enacted in 2021, the Corporate Transparency Act intended to stop criminals, including those funding terrorism, from hiding behind anonymous shell companies. To do that, small businesses would be required to file a report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), naming the people who own or control them, referred to as beneficial ownership information.
Business owners were given a Jan. 1, 2025, deadline to file the new report. Chaos ensued in the weeks just before that deadline.
Numerous lawsuits were filed in federal courts challenging the new requirements. On Dec. 3, 2024, a federal district court blocked the Corporate Transparency Act, taking small businesses off the hook from reporting beneficial ownership information.
Two days before Christmas that year, an appellate court turned reporting requirements back on. But the day after Christmas, a different panel of the same appeals court gave small-business owners a gift by turning them back off.
With the deadline past, business owners thought they were in the clear. Then, in February 2025, a federal court resurrected beneficial ownership information reporting.
By that time, a new administration had entered the White House. In March 2025, the Treasury Department said it would not enforce penalties against U.S. companies or foreign companies with U.S. owners. That announcement turned into an interim final rule, which added foreign companies with U.S. owners to the exemption list. The rule was officially finalized this August.
Did the Treasury illegally repeal a law?
In their lawsuit, the states argue that the Treasury Department regulated a law authorized by Congress out of existence.
According to the lawsuit, more than 32 million companies were required to report beneficial ownership information under the original law. After the Treasury Department’s new rule, that number dwindled to less than 30,000 companies, exempting more than 99.9% of reporting and effectively repealing the law.
The Corporate Transparency Act requires the Treasury to issue regulations that minimize the burden of beneficial ownership information reporting and ensure information is accurate and “highly useful” in national security and law enforcement efforts dealing with money laundering, financing terrorism, tax fraud and other crimes. Exemptions can be made if reporting would not serve the public interest and be highly useful.
While the interim final rule recognized that getting rid of beneficial ownership information reporting by all U.S. companies could lead to illegal activity, the Treasury said that was taken into account. However, the lawsuit points out that the department gave no explanation.
The lawsuit also argues that the new rule provides an easy pathway for whatever foreign companies are left to evade requirements. All one needs to do is create an American subsidiary to do domestic business or just transfer ownership to a U.S. citizen.
Lastly, the original law required beneficial ownership information to be retained for at least five years after a company terminates. Under the new rule, FinCEN plans to delete reports already filed by U.S. companies, which the states say will happen on or before Feb. 10, 2027. That violates both the Corporate Transparency Act language and the Federal Records Act, the states argue.
“The executive branch cannot repeal a law by rulemaking,” the lawsuit states. “That fundamental principle resolves this case.”
The states are asking a federal district court to set aside both the interim and final rules, including blocking the planned data purge.
For now, small-business owners do not have to worry about filing a beneficial ownership information report. But if the lawsuit succeeds, the requirement could return. And if FinCEN purges the reports already on file before the court rules, business owners who complied the first time may wonder whether they will have to do it all over again. LL