The Ironic Impact of FinCEN’s New CTA Regulations on New York’s LLC Transparency Act

This New York Act was discussed in an article by the authors, “Why NY May Want to Reconsider Its LLC Transparency Law,” published in Law360 on March 13, 2025, which suggested that the New York Act should be reconsidered or (at least) its implementation delayed. Since March 1, 2025, events occurred that are material to this discussion and present additional issues regarding the New York Act.

As a reintroduction to this topic, the federal Corporate Transparency Act (CTA) was adopted on January 1, 2021, and became effective on September 22, 2022. It compelled disclosure by many entities formed in the United States (“domestic reporting companies”) or formed outside the United States and qualified to do business in the United States (“foreign reporting companies”) of the names and personal information of their individual “beneficial owners,” both U.S. and foreign. This information was to be filed electronically into a non-public registry maintained by FinCEN, a department within the U.S. Department of the Treasury. The registry opened for business on January 1, 2024, but full implementation was delayed until January 1, 2025.

The New York Act piggy-backed on the CTA, reflecting many of its concepts and incorporating by reference many of its core definitions. It implicitly assumed that most of the information it required would already have been collected under the CTA, so the incremental imposition on reporting companies would be mitigated.

The CTA was ab initio a controversial statute. Resistance to its implementation began early, but accelerated in 2024, and continues to date, as evidenced by 15 separate federal lawsuits, one of which was the subject of Supreme Court deliberation. At the same time, legislative proposals are pending before Congress to modify or repeal the CTA.

The transition from the Biden administration to the second Trump administration substituted, in connection with the CTA, a strongly skeptical leadership in place of a strongly supportive one. For a while after the Inauguration, the actual effects of this change were uncertain.

This changed in March 2025. On March 2, Treasury announced that FinCEN would not enforce any penalties or fines until a new deadline had occurred and that it would not enforce fines or penalties against U.S. citizens or domestic reporting companies or their beneficial owners until a new rulemaking proposal was issued and became effective. The new deadline was generally understood to be March21.

On schedule (but very late in the day) on March 21, FinCEN proposed an interim final rule (IFR), modifying the CTA regulations, which became effective on March 26. This IFR is subject to public comment until May 27, 2025. FinCEN anticipates that a final rule will be issued in 2025 “in light of those comments.” Until then, the IFR is fully in effect and binding.

The IFR made very significant changes to the CTA:

• No entities created in the United States (i.e., domestic reporting companies) have to register or report any beneficial ownership information under the CTA, even if they are wholly or partly owned by foreign entities.
• Only foreign companies registered (i.e., qualified) to do business in the United States (i.e., foreign reporting companies) must file and report. Foreign companies not registered do not have an obligation to file, even if they operate in the United States through U.S. domestic entities.
• Foreign reporting companies first registered to do business in the United States before March 26, 2025, must have filed beneficial ownership information (BOI) reports no later than April 25, 2025.

• Foreign reporting companies first registered to do business in the United States on or after March 26, 2025, have 30 calendar days to file an initial BOI report after the earlier of receipt of notice that the registration is effective or official public notice of such registration.

• However, no beneficial ownership information relating to U.S. persons (as defined in the Internal Revenue Code) must be disclosed by a foreign reporting company or otherwise, and no U.S. person is obligated to provide his or her beneficial ownership information under the CTA. Consequently, foreign reporting companies are exempt from reporting if100% of their beneficial owners are U.S. persons.

FinCEN predicted a drastic decrease in projected filings under the CTA due to the elimination of domestic reporting companies. The 2022 CTA regulations projected 32,556,929 initial reports in Year 1 and 4,998,468 initial reports in Year 2. The IFR, in contrast, projects only 11,667 reports per annum. New York State’s share would be a fraction of that much-reduced national estimate.

FinCEN has indicated it expects to have the final regulations published by the end of 2025. It is possible the final regulations might change these new rules. However, the new rules are fully effective and binding in the interim.

How Do the New Rules Affect the LLC Transparency Act?
Even on a superficial review, the LLC Transparency Act is much more of an outlier than it seemed before the IFR was promulgated. Prior to 2025, a number of other states vetted similar legislative proposals, but none adopted a “baby” CTA. So long as the IFR is in effect, most of the information purportedly required by the New York Act does not have to be reported to or collected by the federal government. The New York Act will materially increase the incremental work required to comply. This would potentially decrease the attractiveness of the State as a venue for business investment. Consequently, the case for repeal of the New York Act, in our view, has become stronger.

Perhaps, though, there is a more fundamental challenge posed by the IFR to the very enforceability of the New York Act. The New York Act may no longer require reporting by most companies it was designed to cover.

The New York Act requires compliance by “reporting companies,” which “shall have the same meaning as defined in 31 U.S.C. §5336(a)(11), as amended, and any regulations promulgated thereunder,” but only to the extent that the definition includes limited liability companies formed or authorized to do business in New York State. These “reporting companies” are obligated to file with the Secretary of State a beneficial ownership disclosure statement identifying each beneficial owner. The New York Act defines “beneficial owner” as having the same meaning as defined in the CTA (31 U.S.C. 5336(a)(3), as amended) and any regulations promulgated thereunder.

Before the IFR was promulgated, it was clear that “reporting company” under the New York Act covered non-exempted limited liability companies formed or qualified to do business in New York. This was the result under the statute (31 U.S.C. §5336(a)(11) and under the regulations (31 CFR §1010.380). It was also clear that “beneficial owner” could include U.S. citizens and other individuals defined as “U.S. persons” in the Internal Revenue Code.

While the IFR does not amend the CTA directly, it makes amendments indirectly. It applies a provision of the CTA that allows creation of new categories of exemptions in addition to the 23 exemptions contained in the CTA—that is, in 31 U.S.C. §5336(a)(11)(B)(xxiv), which provides that an exemption from reporting under the CTA will exist for:

“(xxiv) any entity or class of entities that the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security has, by Regulation, determined should be exempt from the requirements of subsection (b) because requiring beneficial ownership information from the entity or class of entities ---

            “(I) would not serve the public interest; and

“(II) would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.”               

Authority for discharging foreign reporting companies from the obligation to disclose U.S. persons is claimed under a different regulation, 31 U.S.C. §5318 (a)(7), which provides the Secretary of the Treasury with power to prescribe “appropriate” exemptions form a requirement under this subchapter, by actually or constructively notifying the parties involved.

The Supplementary Information introducing the IFR recites that “[t]he Secretary, with the written concurrence of the Attorney General and the Secretary of Homeland Security, has determined” that the conditions of 31 U.S.C. §5336(a)(11)(B)(xxiv) were satisfied. The IFR asserts that it is also indirectly justified by the fact that it is subject to comments and a final rule to be subsequently issued, before the initial outside date (January 1, 2026), for one of the principal deadlines under the CTA. It then states that “[t]he Secretary’s determination is also consistent with the direction of the President, including as set forth in E.O. 14192, Unleashing Prosperity Through Deregulation.”

Using this authority, the IFR amends the CTA regulations (CFR 1010.380(C)) to change the definition of “reporting company” to exclude any U.S. domestic entities, and making conforming changes elsewhere in the regulations, thus purportedly eliminating any need for such entities to report under the CTA.

As a result, the term “reporting company” under the regulations to the CTA (including the IFR) now refers only to foreign reporting companies. Any entity formed in the United States, the District of Columbia, or any U.S. territory is by definition not a “reporting company” and therefor is expressly exempted for reporting.

Unless and until the IFR is significantly changed by the promised final rule, the arguable consequence is the elimination of the requirement under the New York Act to report any information for any limited liability company created in New York or created elsewhere in the United States and qualified to do business in New York. Only a handful of foreign reporting companies would likely be required to file. This would leave the New York Act applicable only to the relative handful of foreign reporting companies who are LLCs and who conduct business in, and qualify to do business in, New York State. With only 11,667 reports from foreign reporting companies projected nationwide per annum, the entire exercise of the New York Act begins to seem questionable. This is an even stronger argument if the New York Act also follows the IFR in exempting foreign reporting companies from disclosing U.S. persons who are their “beneficial owners.”

Any attempt by New York State to enforce the New York Act without considering these changes effected by the IFR will likely be subject to challenge.

If domestic limited liability companies no longer have a duty to make disclosures of beneficial ownership, the New York Act may impose an additional burden. It includes an additional provision that creates a category of “Exempt Company,” which means “a limited liability company or foreign limited liability company not otherwise defined as a reporting company that meets a condition for exemption enumerated in 31 U.S.C. §5336(a)(11)(B).” An Exempt Company, to qualify for exemption under the New York Act, must file an “attestation of exemption,” under penalty of perjury, citing the exemption claimed and the facts on which the exemption is based, to be updated annually. It can be argued that this requirement is still in effect, notwithstanding the IFR, and that domestic limited liability companies formed or registered in New York State would still have to comply with the Exempt Company requirements, since the IFR amends the CTA regulations (CFR 1010.380(c)) to change the definition of “reporting company” to exclude any U.S. domestic entities, thus purportedly eliminating any need, even in the absence of an exemption, for such entities to report under the CTA, and justifies this change by referencing 31 U.S.C. §5336(a)(11)(B)(xxiv) (as noted above). In any event, registration as an “Exempt Company” would provide minimal useful incremental information to what is already publicly filed.

In conclusion, the utility of retaining New York’s LLC Transparency Act, already subject to question, becomes less sustainable in light of the consequences of the federal IFR under the CTA. It seems at least advisable for New York State to delay the effective date to January 1, 2027, to wait for clarification at the federal level.