This is the third part of our three-part series “What Fresh Hell Can This Be?”^[1] about beneficial ownership reporting. In the first part we discussed the Financial Crimes Enforcement Network’s (“FinCEN”) general residential real estate geographic targeting orders (“GTOs”), the Southwest U.S. border GTO, and the soon to be effective non-financed residential real estate reporting regulations.^[2] In the second part we discussed the Corporate Transparency Act (“CTA”) and its Reporting Rules as (being generous) “revised” by the interim final rule (“IFR”) published on March 26, 2025, including changes and issues wrought by the revisions.^[3] We now turn our attention to the New York LLC Transparency Act, a statute whose intent has been thwarted by the IFR’s destruction of the intended scope of the CTA.

The New York LLC Transparency Act: The Basics

New York’s LLC Transparency Act (“Transparency Act”) was the first and to date is the only state statute providing for a state-level beneficial ownership database^[4] akin to that of the CTA.^[5] Narrower in scope than was the CTA, which reached essentially all companies (corporations, LLCs, limited partnerships, etc.) created or qualified to transact business in the United States, the Transparency Act reaches only LLCs.^[6] Under this law, each limited liability company organized in New York that would be treated as a “reporting company” under the CTA^[7] (a “domestic reporting LLC”) is obligated to file a beneficial owner designation (“BOD”) within thirty days of when it files its initial articles of organization.^[8] With respect to LLCs organized outside of New York but applying to transact business in the Empire State^[9] that would be a reporting company under the CTA^[10] (a “foreign reporting LLC” (domestic reporting LLCs and foreign reporting LLCs are, collectively, “reporting LLCs”)) must file a BOD within thirty days of when it files its application for a certificate of authority to transact business in New York. All of these filings will be electronic and made with the New York secretary of state.^[11] In addition, the New York secretary of state is authorized to issue regulations to effect the required BOD filing mechanism.^[12] To date^[13] no regulations have been issued, but the secretary of state has signaled that they will soon be issued.

The Initial Reporting Deadline and Claims of Exemption

As most recently amended, the Transparency Act has an initial effective date of January 1, 2026. Working from that date, the initial filing due dates for a domestic reporting LLC or a foreign reporting LLC are as follows:

Where a reporting LLC believes itself exempt from the Transparency Act’s reach by reason of one of the exemptions from “reporting company” status under the CTA and the Reporting Rules,^[18] it must file a report to that effect, including under which of the CTA’s / Reporting Rules’ exemptions it qualifies;^[19] this submission is made under penalty of perjury.

Updating Obligations

Having filed an initial BOD, an annual update is required. That annual update will require either updates to any information that has changed or a certification that the information of record remains accurate.^[20] This updating obligation includes a new certification from each exempt company as to the exemption upon which it is relying. Unlike the CTA, there is no obligation to file an update simply because of a change as to the reporting LLC’s information or that of any of its beneficial owners.^[21]

Beneficial Owners

The Transparency Act incorporates by reference from the CTA and the Reporting Rules the definitions and principles there employed to determine who is with respect to a reporting LLC a “beneficial owner.”^[22] The problem this incorporation raises for the Transparency Act is discussed below.

Applicants

The Transparency Act requires, as to each reporting LLC, information about the “applicant,” the definition of which is adopted from the CTA.^[23] However, while the CTA did not require that an initial Beneficial Ownership Information Report (“BOIR”) for a company organized before January 1, 2024, report its company applicant,^[24] no such limiting principle applies under the New York law—in other words, all LLCs ever organized in New York (if still in operation) or qualified to transact business (if still qualified) must identify a company applicant. The New York LLC Act became effective in October 1994, so in some instances there will need to be a lookback of thirty-one years to determine who was the applicant(s). Currently, the Transparency Act provides no mechanism of relief for reporting LLCs whose applicants who are no longer with us; it will be rather difficult to submit either a current address or an identifying number from a current driver’s license or passport for a person now deceased. Similar problems will exist as to applicants who cannot be identified or located or who are simply recalcitrant.^[25]

Required Contents of a BOD

Each reporting LLC, in its BOD, is required to set forth as to each beneficial owner and each applicant the following:

• full legal name;
• date of birth;
• current home or business street address;^[26] and
• a unique identifying number from (i) an unexpired passport, (ii) an unexpired state driver’s license, or (iii) an unexpired identification card or document issued by a state or local government agency or tribal authority for the purpose of identification of that individual.^[27]

Consequences of Failure to File

There are a variety of $500 penalties that apply upon failure to file an initial or an annual update report, ranging from per diem fines up to and including dissolution or the cancellation of the certificate of authority to transact business.^[28]

A Few Points of Comparison

Notwithstanding that the Transparency Act adopts by references certain rules and principles from the CTA, there are material differences between the two regimes that may be encapsulated as follows:

The New York City Real Property Transfer Tax Return

In addition to the Transparency Act, New York City’s Department of Finance, in connection with the New York City Real Property Transfer Tax Return (“NYC-RPT”), requires disclosure of two new additional “grantor” and “grantee” types: (1) single-member LLCs and (2) multiple-member LLCs. For any grantor or grantee that is an LLC, the NYC-RPT requires the names of all members of the grantor or grantee, regardless of percentage of ownership interest or level of management control, as well as each member’s Social Security number or employment identification number. According to published reports, the aim of this change was to capture information needed to address tax fraud.^[58]

The IFR-Sourced Inconsistencies Between the Transparency Act and the CTA

As already discussed, the IFR effected significant changes to the system contemplated by the CTA and the Reporting Rules; the Transparency Act, having been drafted well before the IFR, has suffered consequent damage. For example:

Bills to amend the Transparency Act to “de-link” it from certain of the CTA’s definitions and the disconnects identified above have been approved by the New York legislature; whether they will ultimately be enacted into law remains to be seen.^[67] Speaking broadly, the proposals delete the cross-references to the CTA and the related regulations and substitute repetitions of the previously referenced language.

For example, currently the Transparency Act provides that: “‘[r]eporting company’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(11), as amended, and any regulations promulgated thereunder,” and then goes on to restrict the application to foreign and domestic LLCs.^[68] The proposed amendment to the Transparency Act would rewrite that definition to provide that a reporting company is an LLC either organized in or qualified to transact business in New York and not falling within one of twenty specific categories similar, but not identical, to the twenty-three exemptions from reporting company status under the pre-IFR Reporting Rules.^[69]

There will remain, however, significant issues. For example, the definition of “beneficial owner” (effective as of January 1, 2026) references both the CTA statute and the related regulations, the latter now exempting all U.S. persons from its scope.^[70] Under the possibly amended definition, a “beneficial owner” will be “any entity or individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: (1) exercises substantial control over the entity; or (2) owns or controls not less than twenty-five percent of the ownership interests of the entity.”^[71] And herein lie more problems. First, what is the definition of “substantial control”? It was exhaustively defined in the CTA’s Reporting Rules,^[72] but it is not proposed that the definition there employed be incorporated by reference into the Transparency Act. And what is the definition of “owns or controls”? What it meant under the CTA’s Reporting Rules to “own or control” an interest in a reporting company was carefully detailed,^[73] but no similar definition appears or is proposed to be added to the Transparency Act. Last, although what constitutes an “ownership interest” in a reporting company was detailed in the CTA’s Reporting Rules,^[74] that term is not defined in the Transparency Act.

Further, there is a provision of New York Senate Bill 8432 (which substituted for Assembly Bill 8662) that is simply baffling, namely, a revised definition of “exempt company” that appears to be a faulty cut-and-paste:

(c) “Exempt company” shall mean a limited liability company or foreign limited liability company not otherwise defined as a reporting company that meets one or more of the following conditions:

(1) a minor child, which shall mean an individual under the age of eighteen;

(2) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;

(3) an individual acting solely as an employee of a corporation, limited liability company, or other similar entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person;

(4) an individual whose only interest in a corporation, limited liability company, or other similar entity is through a right of inheritance; or

(5) a creditor of a corporation, limited liability company, or other similar entity, unless the creditor meets the requirements of paragraph one of this subdivision.^[75]

While this is clearly based upon a provision of the Reporting Rules,^[76] in the Reporting Rules it is a series of exemptions from the defined term “beneficial owner”—not “exempt company.”^[77]

There also exists the question of whether there will be sufficient time for New York to both organize its beneficial ownership reporting database (to date, the authors are unaware of the promulgation of even proposed regulations) and publicize the revised law.

As matters stand currently, consequent to its linkage to the CTA’s Reporting Rules as to what is a “reporting company,” the Transparency Act will not apply either to the LLCs organized (“created,” in the parlance of the CTA) in New York or to any other LLC organized in the United States.^[78] Rather, it will reach only LLCs that have been formed outside the U.S. and then have qualified or do qualify to transact business in New York^[79]—assuming that the foreign organization does fall within the scope of a reporting company requiring it to be a “limited liability company” and an “entity.”^[80] In order to return the Transparency Act to its intended scope, its revision will be necessary in order to de-link its definitions from those now employed in the CTA and the post-IFR Reporting Rules.^[81]

Beneficial Ownership Reporting in Limbo

As we bring this article to a close, the CTA still remains on the books, even as the current administration has through questionable regulatory action destroyed the contemplated reporting system;^[82] the Southwest U.S. border GTO is in litigation and has at the circuit court level been found wanting; the residential real estate GTOs are provisionally extended until the delayed effective date of the Residential Real Estate Rules, which are themselves under challenge;^[83] and New York’s LLC Transparency Act is caught between the rock and the hard place of adopted-by-reference defined terms that are now inconsistent.

We are certainly glad to have cleared up all of that.^[84]

Postscript

In Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025), at footnote 259 we discussed the Fidelity National litigation in which the validity of the RRE Rules was challenged. Fid. Nat’l Fin., Inc. v. Bessent, No. 3:25-cv-00554 (M.D. Fla. filed May 20, 2025). We noted that as to its status oral argument as to competing motions for summary judgment has been heard. On December 9 the magistrate judge issued a recommendation (docket item 82) that the plaintiffs’ motion for summary judgment be denied and that the government’s motion for summary judgment be granted, finding that the adoption of the RRE Rules was legitimate pursuant to a statutory grant of authority.

1. Of the famous poet and witticist Dorothy Parker (1893–1967), it is said:

   “If the doorbell rang in her apartment, she would say, ‘What fresh hell can this be?’—and it wasn’t funny; she meant it.” You might as well live: the life and times of Dorothy Parker, John Keats (Simon Schuster, 1970, p. 124). Often quoted as “What fresh hell is this?” as in the title of the 1987 biography by Marion Meade, “Dorothy Parker: What Fresh Hell Is This?”

   See Dorothy Parker, Wikiquote (last visited Nov. 22, 2025). The authors suggest this is a fair summation of all that practitioners have had to face over the last more than two years in staying current on developments in beneficial ownership reporting. ↑

2. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025). ↑

3. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the CTA, Bus. L. Today (Dec. 10, 2025). ↑

4. The closest exception to this statement is the District of Columbia, which has since 2019 required disclosure of beneficial owners with ownership of or exceeding 10 percent or who control or have the ability to control the operational direction of the company. See D.C. Code § 29-102.01(a)(6), (7) (addressing initial filings by, respectively, domestic and foreign entities); id. § 29-102.11(a)(6), (7) (annual report filings by, respectively, domestic and foreign entities); see also 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:36 (Dec. 2025). ↑

5. See S.B. 995B, 2023–2024 Leg. (N.Y. 2023) (signed by the governor on Dec. 22, 2023) (Approval Memo 91) (codified as 2023 New York Laws 772 and effective 365 days after adoption (theoretically, Saturday, December 21, 2024)). It was then amended on March 21, 2024, to, among other points, provide an initial effective date of January 1, 2026. See S.B. 8059, 2023–2024 Leg., § 10 (N.Y. 2024); see also Andrew Weiner, Brian Montgomery & Deborah Thoren-Peden, Why NY May Want to Reconsider Its LLC Transparency Law, Law360 (Mar. 13, 2025) (“New York is, as of this date, the only state to have enacted a beneficial ownership disclosure law modeled on the federal Corporate Transparency Act.”).

   While New York is the only state-level beneficial ownership system comparable to the CTA in effect, similar programs have been considered in California (S.B. 738, 2023–24 Sess. (Cal. 2024)); Maryland (S.B. 954, 2024 Gen. Assemb., Reg. Sess. (Md. introduced Feb. 2, 2024)); and Massachusetts (H. 3566, 193d Gen. Ct. (Mass. introduced Mar. 30, 2023)). See also Weiner, Montgomery & Thoren-Peden, supra (“During the salad days of the federal CTA, before the opposition coalesced, several state legislatures jumped into the fray and considered their own CTA-like legislation, notably California, Maryland and Massachusetts. But only New York succeeded in adopting a ‘baby CTA’ statute, named the LLC Transparency Act.”). ↑

6. See N.Y. Ltd. Liab. Co. Law [hereinafter NYLLC Law], § 102(m) (defining “limited liability company” or “domestic limited liability company” to mean “an unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business . . . other than a partnership or trust, formed and existing under this chapter and the laws of this state.”). ↑

7. See id. § 1106(b) (effective Jan. 1, 2026) (“‘Reporting company’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(11), as amended, and any regulations promulgated thereunder, but shall only include limited liability companies formed or authorized to do business in New York state.”). That provision of the CTA (31 U.S.C. § 5336(a)(11)(A)) identifies a reporting company as:

   (A) means a corporation, limited liability company, or other similar entity that is—

   (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or

   (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. ↑

8. See NYLLC Law § 1107 (effective Jan. 1, 2026) provides in part:

   (d) Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.

   (e) Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section. ↑

9. See id. § 102(k). This section defines a “foreign limited liability company” as:

   an unincorporated organization formed under the laws of any jurisdiction, including any foreign country, other than the laws of this state (i) that is not authorized to do business in this state under any other law of this state and (ii) of which some or all of the persons who are entitled (A) to receive a distribution of the assets thereof upon the dissolution of the organization or otherwise or (B) to exercise voting rights with respect to an interest in the organization have, or are entitled or authorized to have, under the laws of such other jurisdiction, limited liability for the contractual obligations or other liabilities of the organization. ↑

10. See id. § 1107(d), (e) (effective Jan. 1, 2026). ↑

11. See id. § 1107(c) (effective Jan. 1, 2026) (“All beneficial ownership disclosures, attestations of exemption, and filing fees shall be submitted electronically as prescribed by the department of state. The beneficial ownership disclosure or attestation of exemption shall be signed electronically consistent with the provisions of article three of the state technology law.”). What are to be the filing fees that attach to these filings have not yet been publicly addressed. See also Memorandum from John Whalen, N.Y. Secretary of State’s Office, to “Drawdown Accounts” Dated Nov. 3, 2025, Re: Beneficial Owner Disclosure (copy is in possession of authors). (“All beneficial ownership disclosure statements and attestations of exemption must be filed with the Department electronically. The Department is developing an online filing system, that will be available on 01/01/2026.”). ↑

12. See NYLLC Law § 1108(h) (effective Jan. 1, 2026) (“The secretary of state may promulgate regulations necessary to effectuate the provisions of this article.”). ↑

13. As of December 7, 2025. ↑

14. See NYLLC Law § 1107(d) (effective Jan. 1, 2026) (“Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”). ↑

15. See id. § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”). ↑

16. See id. § 1107(d) (effective Jan. 1, 2026) (“Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, a reporting company shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within thirty days of an initial filing of articles of organization or an application for authority pursuant to this chapter, an exempt company shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”); see also Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11:

    Foreign limited liability companies that are authorized to do business in New York State on or after January 1, 2026, will be required to file an initial beneficial owner disclosure statement or attestation of exemption within 30 days of authorization. Those authorized to do business in New York State prior to January 1, 2026, will need to file by December 31, 2026. ↑

17. See NYLLC Law § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies shall file with the department of state a beneficial ownership disclosure that complies with subdivision (a) of this section. Within one year of the effective date of this section, all previously formed or authorized exempt companies shall file with the department of state an attestation of exemption that complies with subdivision (b) of this section.”); see also Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11. ↑

18. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

19. See id. § 1107(b) (effective Jan. 1, 2026) (“[A]ll exempt companies shall electronically file, under penalty of perjury, an attestation of exemption in such form designated by the department of state, which statement shall include the specific exemption claimed and the facts on which such exemption is based. Any company filing an exemption pursuant to this subdivision shall be subject to the annual statement requirement as stated in subdivision (g) of this section in the form prescribed by the department, which statement shall be attested to under penalty of perjury.”); see also Andrew Weiner, Brian Montgomery & Deborah Thoren-Peden, Evolving Federal Rules Pose Further Obstacles to NY LLC Act, Law360 (May 14, 2025) (“An exempt company, to qualify for exemption under the LLC Transparency 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.”).

    Aside from the inconsistency problem identified below, this requirement is a marked departure from the CTA as enacted through the Reporting Rules. Under that system, no filing was required if a company as of an initial effective date was able to avail itself of an exemption from reporting company status. If a company filed a Beneficial Ownership Information Report (“BOIR”) and then fell within the scope of an exemption, it would file an updated BOIR indicating it was henceforth exempt, but without the requirement to identify under which exemption it fell. See 31 C.F.R. §§ 1010.380(a)(2)(ii), 1010.380(b)(3)(ii). ↑

20. See NYLLC Law § 1107(g) (effective Jan. 1, 2026) (“Once the initial beneficial ownership disclosure has been filed, all reporting companies shall electronically file with the department of state an annual statement confirming or updating: (1) their beneficial ownership disclosure information; (2) the street address of its principal executive office; (3) status as exempt company, if applicable; and (4) such other information as may be designated by the department of state.”). ↑

21. Compare 31 C.F.R. § 1010.380(a)(2)(i). ↑

22. See NYLLC Law § 1106(a) (effective Jan. 1, 2026) (“‘Beneficial owner’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(3), as amended, and any regulations promulgated thereunder.”). ↑

23. See id. § 1106(d) (effective Jan. 1, 2026) (“‘Applicant’ shall have the same meaning as defined in 31 U.S.C. § 5336(a)(2), as amended, and any regulations promulgated thereunder, but shall only include those relating to limited liability companies.”). The cited provision of the CTA provides:

    APPLICANT.—The term “applicant” means any individual who—(A) files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe; or (B) registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe.

    The Reporting Rules, pre-IFR, at 31 C.F.R. § 1010.380(e), defined “company applicant” as:

    (1) For a domestic reporting company, the individual who directly files the document that creates the domestic reporting company as described in paragraph (c)(1)(i) of this section;

    (2) For a foreign reporting company, the individual who directly files the document that first registers the foreign reporting company as described in paragraph (c)(1)(ii) of this section; and

    (3) Whether for a domestic or a foreign reporting company, the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.

    This provision was amended by the IFR to provide:

    For purposes of this section, the term “company applicant” means:

    (1) [Reserved]

    (2) The individual who directly files the document that first registers the reporting company as described in paragraph (c)(1)(ii) of this section; and

    (3) The individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document. ↑

24. See also 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:18 (Dec. 2025):

    The CTA goes on to require that the initial BOIRs filed by reporting companies include information as to the applicant. This protocol was modified in the Reporting Regulations to the effect that (a) companies pre-existing the effective date of the Reporting Regulations are not required to identify their applicants (renamed in the Reporting Regulations the “company applicant(s)”) and (b) eliminated the requirement that the identifying information provided as to the company applicant be updated. ↑

25. See also Robert R. Keatinge & Thomas E. Rutledge, Impossible Things: Compliance with the Corporate Transparency Act When Beneficial Owners or Company Applicants Are Nonresponsive, Bus. L. Today (Dec. 16, 2024). ↑

26. Permitting the use of a business address is a departure from the CTA, which requires a residential address. See 31 C.F.R. § 1010.380(b)(1)(ii)(C)(2). ↑

27. See NYLLC Law § 1107(a) (effective Jan. 1, 2026). In contrast with the CTA (31 C.F.R. § 1010.380(b)(ii)(E)), the Transparency Act does not require an image of the passport / driver’s license / identification card from which the unique identifying number is taken. In another contrast with the CTA, it provided for a “FinCEN ID” that could be used by a beneficial owner in place of providing to the company his or her personal identifying information, with that FinCEN ID number then included in the reporting company’s BOIR. See 31 C.F.R. § 1010.38(b)(4); see also Ribstein, Keatinge & Rutledge, supra note 4, § 4A:25. The Transparency Act has no equivalent to a FinCEN ID. ↑

28. See NYLLC Law § 1108 (effective Jan. 1, 2026). ↑

29. See id. § 1106(b). There is a certain ambiguity in determining what is a foreign “limited liability company”; if a foreign country does not use that label, is the foreign entity a “limited liability company”? ↑

30. See 31 U.S.C. § 5336(a)(11)(i); 31 C.F.R. § 1010.380(c)(1)(i). ↑

31. See 31 U.S.C. § 5336(a)(11)(ii); 31 C.F.R. § 1010.380(c)(1)(ii). ↑

32. See S.B. 8059, 2023–2024 Leg., § 10 (N.Y. 2024). ↑

33. See 31 C.F.R. § 1010.380(a)(1)(A). ↑

34. See NYLLC Law § 1107(d) (effective Jan. 1, 2026). ↑

35. See 31 C.F.R. § 1010.380(a)(1) (extended in 2024 to ninety calendar days); see also Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66730 (Sept. 28, 2023). ↑

36. See NYLLC Law § 1107(e) (effective Jan. 1, 2026) (“Within one year of the effective date of this section, all previously formed or authorized reporting companies . . . .”). ↑

37. See 31 C.F.R. § 1010.380(a)(1)(iii). ↑

38. See NYLLC Law § 1107(g) (effective Jan. 1, 2026) (“Once the initial beneficial ownership disclosure has been filed, all reporting companies shall electronically file with the department of state an annual statement confirming or updating: (1) their beneficial ownership disclosure information; (2) the street address of its principal executive office; (3) status as exempt company, if applicable; and (4) such other information as may be designated by the department of state.”). ↑

39. See 31 C.F.R. § 1010.380(a)(2). ↑

40. See NYLLC Law § 1107(a) (effective Jan. 1, 2026). ↑

41. See 31 C.F.R. §§ 1010.380(b)(1)(ii) (“and every individual who is a company applicant”), 1010.380(b)(2)(iv) (“Notwithstanding paragraph (b)(1)(ii) of this section, if a reporting company was created or registered before January 1, 2024, the reporting company shall report that fact, but is not required to report information with respect to any company applicant”). ↑

42. See 31 C.F.R. § 1010.380(b)(1)(ii)(E). ↑

43. See 31 C.F.R. § 1010.380(b)(4). ↑

44. See NYLLC Law § 1107(d) (effective Jan. 1, 2026), which provides in part:

    (2) by court order; (3) to officers or employees of another federal, state or local government agency where disclosure is necessary for the agency to perform its official duties as required by statute or necessary to operate a program specifically authorized by law; or (4) for a valid law enforcement purpose including as relevant to any law enforcement investigation by the office of the attorney general. ↑

45. See 31 U.S.C. § 5336(c)(2)(B). ↑

46. See 31 U.S.C. § 5336(c)(2)(C). ↑

47. See NYLLC Law § 1107(f) (effective Jan. 1, 2026). ↑

48. See 31 U.S.C. § 5336(c)(2)(A). ↑

49. See NYLLC Law § 1108(a)(2) (effective Jan. 1, 2026). ↑

50. See NYLLC Law § 1108(a)(3) (effective Jan. 1, 2026). ↑

51. See NYLLC Law § 1108(b)(1) (effective Jan. 1, 2026). ↑

52. See NYLLC Law § 1108(b)(2) (effective Jan. 1, 2026). ↑

53. See NYLLC Law §§ 1108(e)(1), 1108(e)(4) (effective Jan. 1, 2026). ↑

54. See 31 U.S.C. § 5336(h)(3)(A). ↑

55. See 31 U.S.C. § 5336(h)(3)(B). ↑

56. See NYLLC Law § 1107(b) (effective Jan. 1, 2026) (“All exempt companies shall electronically file, under penalty of perjury, an attestation of exemption in such form designated by the department of state, which statement shall include the specific exemption claimed and the facts on which such exemption is based.”). ↑

57. See 31 C.F.R. § 1010.380(a)(2)(ii):

    If a reporting company meets the criteria for any exemption under paragraph (c)(2) of this section subsequent to the filing of an initial report, this change will be deemed a change with respect to information previously submitted to FinCEN, and the entity shall file an updated report.

    See also Fin. Crimes Enf’t Network, Frequently Asked Questions (“FAQs”), FAQ J.8 (Sept. 18, 2023). ↑

58. See Revised NYC Property Transfer Tax Return Requires New Disclosures for Multiple Member LLCs, Prac. L. Real Est. (July 23, 2015); see also Lauren Elkies Schram, 5 Reasons Why the New LLC Disclosure Rules Stink, Com. Observer (July 29, 2015). New York is also considering in 2025 legislation that if enacted would require the filing of additional beneficial ownership information for LLCs that file a Rent Registration Statement under the Emergency Tenant Protection Act of 1974. S.B. 119, 2025–2026 Leg. (N.Y. 2025). ↑

59. See NYLLC Law § 1106(a) (effective Jan. 1, 2026). ↑

60. See 31 C.F.R. § 1010.380(d)(4)(ii). ↑

61. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

62. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

63. See NYLLC Law § 1106(c) (effective Jan. 1, 2026). ↑

64. See 31 C.F.R. § 1010.380(d)(4)(i). ↑

65. See NYLLC Law § 1106(d) (effective Jan. 1, 2026). ↑

66. See 31 C.F.R. § 1010.380(e). ↑

67. See S.B. 8432, 2025–2026 Leg. (N.Y. 2025) (substituting for A.B 8662A, 2025–2026 Leg. (N.Y. 2025)). To the authors’ knowledge, these bills were passed but not sent to the governor when the New York legislature adjourned. ↑

68. See NYLLC Law § 1106(b) (effective Jan. 1, 2026). ↑

69. See S.B. 8432, § 1; A.B. 8662A, § 1; see also 31 U.S.C. § 5336(a)(11)(B); 31 C.F.R. § 1010.380(c)(2). ↑

70. See Houston, Keatinge, Rutledge & Wheaton, supra note 3. ↑

71. See S.B. 8432, § 1(a); A.B. 8662A, § 1(a). ↑

72. See 31 C.F.R. § 1010.380(d)(1). ↑

73. See id. § 1010.380(d)(2)(ii)–(iii), (d)(3). ↑

74. See id. § 1010.380(d)(2)(i). ↑

75. See S.B. 8432, § 1(c); A.B. 8662, § 1(c). ↑

76. See 31 C.F.R. § 1010.380(d)(3). ↑

77. This is not to suggest that this let’s just say inexplicable provision of Senate Bill 8432 is its only failing. Section (1)(b)(2), which intends to define those LLCs exempt from the BOR filing obligation (although they are required to file a statement that they are exempt and that specifies the exemption(s) upon which they are relying), includes at (xvi) an exemption for any [LLC] that “(A) operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in subparagraph (xiv). . . .” Subparagraph (xiv) addressed pooled investment vehicles. No doubt the intended cross-reference is to (xv), which addresses nonprofit organizations under I.R.C. § 501(c). See also 31 U.S.C. §§ 5336(a)(ii)(B)(xx), 5336(a)(ii)(B)(xix); 31 C.F.R. §§ 1010-380(c)(2)(xx), 1010-380(c)(2)(xix). Ergo, the CTA’s exemption from reporting company classification for an “entity assisting a tax-exempt entity,” except as to the perhaps null set of I.R.C. § 501 tax-exempt pooled investment vehicles, is not available under the Transparency Act. Thanks to Alan Stachura for pointing out this obscure error. ↑

78. See also Weiner, Montgomery & Thoren-Peden, supra note 19:

    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 U.S., the District of Columbia or any U.S. territory is by definition not a reporting company and therefore is expressly exempt from 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 LLC Transparency Act to report any information for any LLC created in New York or elsewhere in the U.S. and qualified to do business in New York. ↑

79. See Memorandum from John Whalen at the N.Y. Secretary of State’s office, supra note 11 (“Effective January 1, 2026, limited liability companies that are formed under the laws of a foreign country and which are authorized to do business in New York will be subject to new beneficial ownership information disclosure requirements.”). ↑

80. See also Ribstein, Keatinge & Rutledge, supra note 4, § 4A:10. Note that the Transparency Act references the CTA for what is a “foreign LLC” and does not use the definition of that term otherwise employed in the New York LLC Act. See NYLLC Law § 102(k):

    “Foreign limited liability company” means an unincorporated organization formed under the laws of any jurisdiction, including any foreign country, other than the laws of this state (i) that is not authorized to do business in this state under any other law of this state and (ii) of which some or all of the persons who are entitled (A) to receive a distribution of the assets thereof upon the dissolution of the organization or otherwise or (B) to exercise voting rights with respect to an interest in the organization have, or are entitled or authorized to have, under the laws of such other jurisdiction, limited liability for the contractual obligations or other liabilities of the organization. ↑

81. See Andrew J. Weiner, Brian H. Montgomery & Deborah S. Thoren-Peden, The Ironic Impact of FinCEN’s New CTA Regulations on New York’s LLC Transparency Act, Pillsbury (May 5, 2025). ↑

82. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the CTA, Bus. L. Today (Dec. 10, 2025). ↑

83. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025). ↑

84. The authors would like to thank Pia Angelikis, Dr. J. William Callison, Professor Michael Healy, Kevin Shepherd, Alan Stachura, and Andrew Weiner for helpful comments on aspects of this manuscript. The authors retain the responsibility for any and all errors herein. ↑

This is the second part of a three-part series about beneficial ownership reporting; in the first part we discussed the Financial Crimes Enforcement Network’s (“FinCEN”) general residential real estate geographic targeting orders (“GTOs”), the Southwest U.S. border GTO, and the soon to be effective non-financed residential real estate reporting regulations.^[1] We now turn our attention to the Corporate Transparency Act (“CTA”) and its Reporting Rules^[2] as (being generous) “revised” by the Interim Final Rule (the “IFR) published on March 26, 2025.

When we brought to a close the last of our earlier articles reviewing the CTA,^[3] both of the nationwide injunctions against its enforcement had been lifted, court challenges to the constitutionality of the CTA were proceeding in a variety of district and appellate courts, the administration had informally announced a revision of the Reporting Rules to the effect that U.S. companies and U.S. persons would be exempt from reporting obligations, and Senators Whitehouse and Grassley had written to Treasury Secretary Bessent asking for an explanation of how that proposed significant restriction of the CTA is consistent with the statutory requirements and the congressional findings in support thereof.^[4] As we write this installment of this seemingly never-ending story, the IFR has been published, comments have been solicited, and we await a final rule promised before the end of the year. Meanwhile steps have been taken to hold the litigation against the CTA in abeyance.

If January 1, 2021, the date of passage of the CTA, and September 22, 2022, the date of the release of the Reporting Rules, have been the crucial dates for those practicing in this realm, then March 21, 2025,^[5] will be added to that series of dates of crucial developments. On that day, FinCEN released the IFR, effecting its stated plan of neutering the CTA by exempting U.S. organized companies and all U.S. persons from its scope.^[6] Complementing the IFR,^[7] FinCEN released a press release,^[8] a notice,^[9] and an alert.^[10] Collectively, they rendered the CTA statute as implemented by FinCEN’s regulations a pale and withered shadow of itself.

So, What Has Changed?

The question of “what has changed” between the Reporting Rules^[11] and the IFR is, depending on your perspective, either “almost everything” or “almost nothing.”

As for the former viewpoint, what were previously domestic reporting companies^[12] have been exempted from the scope of the Reporting Rules. Further, if a foreign reporting company as defined under the Reporting Rules, now a “reporting company” under the IFR, has a U.S. person as a beneficial owner (regardless of whether that person is a beneficial owner under the beneficial ownership test, the control test, or both), there is no obligation to report that person on the filed Beneficial Ownership Information Report (“BOIR”) (whether initial or updated).^[13] To that end, a foreign business organization that is qualified to transact business in one or more of the states and that has only U.S. persons as beneficial owners will have nothing to report beyond its own identification and perhaps that of a company applicant, depending upon when it files or will file its initial BOIR. As herein otherwise discussed, FinCEN’s system will not accept a BOIR that does not list at least one beneficial owner,^[14] so what is to happen in that circumstance is as of now unknown.

Turning to the “almost nothing” perspective on the changes wrought by the IFR, there are innumerable other obligations and rules set forth in the Reporting Rules. The ownership test and the control test for who is a beneficial owner remain in place,^[15] as do the rules for reporting of trusts^[16] and the treatment of ownership interests in an estate.^[17] The twenty-three categories of companies exempt from the BOIR reporting obligations^[18] have been left in place even as another category has been added.^[19] Meanwhile, it must be recognized that the rule as to ownership interests owned by a minor was updated in the IFR to address the now-limited scope of the IFR as contrasted with the Reporting Rules.^[20] Retained as well is the ambiguity in needing to determine whether a foreign organized venture is an “entity,”^[21] a condition precedent to bringing it into the BOIR filing requirements.^[22]

Various terms—including “crumbled,”^[23] “gutted,”^[24] “significantly limited,”^[25] “broadly eliminated,”^[26] “hollowed out,”^[27] and the far gentler “out like a lamb”^[28]—have all been used to describe the impact of the IFR on the CTA. But let’s not kid ourselves—the IFR has destroyed^[29] the beneficial ownership system approved by Congress in the CTA. Domestic reporting companies, estimated as of September 2022 to number 32,600,000 and more than 36,500,000 by 2024,^[30] were expected to be filing BOIRs; now they are not obligated to do so.^[31] These estimates stand in opposition to estimates of “foreign reporting companies,” which measure in the low tens of thousands.^[32] Assuming 36.5 million domestic reporting companies and FinCEN’s high-end estimate of 20,000 foreign reporting companies, requiring only the latter to file BOIRs yields .0547 percent of the total sum, a vanishingly small number.^[33] Put another way, the IFR has released 99.945 percent of the universe of CTA reporting companies from the reporting obligation. By illustration, if we assume that the population of the United States is 342 million and reduce it by the same percent that the CTA reporting companies have been cut, our country would now have 187,000 souls (not even enough for one congressional district). Going forward, those few reporting companies remaining, being what were previously “foreign reporting companies,” do not have to identify on a BOIR any beneficial owner who is a U.S. person.^[34] As noted below, it is so easy for persons who are not U.S. persons to circumvent the remaining reporting obligations that their existence is a joke—just not a funny joke.

Noteworthy Gaps in the IFR and a Huge Blind Spot (or Is That a Planning Opportunity?)

There are at least four noteworthy gaps in the IFR as well as a huge blind spot even in its greatly reduced scope. These are just five of the “ready-fire-aim” criticisms raised as to the IFR. First, although the IFR (i) exempts from reporting all business organizations “created”^[35] in the U.S. (they are no longer “reporting companies”)^[36] and (ii) relieves foreign business organizations that are reporting companies of the responsibility of providing either the personally identifiable information (“PII”) or a FinCEN ID for any U.S. person who is a beneficial owner,^[37] there is no exemption from providing the PII or a FinCEN ID for a U.S. person who is a company applicant.^[38] So, although a U.S. person who is the sole beneficial owner of a reporting company need not be identified on a BOIR, the attorney, paralegal, or employee of a service company who files the “application for a certificate of authority”^[39] must be so identified even though in most instances that person has only a passing relationship with the reporting company.^[40]

Second, a BOIR must identify at least one beneficial owner; the BOIR’s cells for a beneficial owner are marked with an asterisk on the BOIR form as mandatory.^[41] Assume a German GmbH is qualified to transact business in, say, Kentucky; it is a reporting company and must file a BOIR.^[42] However, further assume that the only beneficial owners of that GmbH are U.S. persons; per the IFR, they are not to be identified.^[43] As noted above, in order to file a BOIR, that GmbH reporting company must identify at least one beneficial owner, but on these facts all beneficial owners are exempt from being identified. The IFR did not address what this GmbH should do. Is there an implicit exemption for reporting companies in which all beneficial owners are U.S. persons?^[44] It would seem that this is the case as they cannot file a “true, correct, and complete” BOIR,^[45] but the Reporting Rules as amended by the IFR do not provide an exemption to that effect. Granted, the release accompanying the IFR says that no filing is required; are we now in a realm in which the language of the regulations may be superseded by language in a subsequent release?

Third, while exempting U.S. persons from being identified on BOIRs filed by reporting companies (a set now reduced to what were “foreign reporting companies”), no relief was granted to U.S. persons from the obligation to update the applications they filed for FinCEN IDs.^[46] While numbers have not been published by FinCEN that will enable an exact calculation, it is a fair assumption that the vast majority of persons who applied for a FinCEN ID were U.S. persons who were or anticipated that they would be beneficial owners of what were domestic reporting companies. While those companies are no longer obligated to file initial or updated BOIRs reporting changes in information as to the organization or its beneficial owners, those beneficial owners with FinCEN IDs must still update the FinCEN ID applications until, as matters stand currently, death.^[47] In effect, holders of a FinCEN ID must keep it current even though there is almost no circumstance in which that FinCEN ID number will be submitted on a BOIR.^[48] The only exceptions are as follows: (i) the holder of the FinCEN ID is a company applicant or (ii) the holder is a beneficial owner who is not a U.S. person. It is a fair assumption that the group comprising the excepted holders is a small subset of the persons who in 2024 applied for a FinCEN ID.

Fourth, the IFR created a twenty-fourth exemption from status as a reporting company for those companies formed in the U.S.^[49] This exemption applies to all U.S. organized reporting companies (previously defined as “domestic reporting companies”) that filed a BOIR prior to the publication of the IFR. Under the Reporting Rules as amended by the IFR, a company that has filed a BOIR but that comes within the scope of an exemption from reporting is to file an updated BOIR indicating that it now satisfies an exemption from reporting.^[50] But must every company that has filed a BOIR that is now exempt from reporting under the IFR file an updated BOIR in order to give notice that it is no longer obligated to file BOIR updates? On the one hand, a strict reading of the Reporting Rules as amended by the IFR would say that the amended BOIR is required. On the other hand, FinCEN said in the release accompanying the IFR amendments to the Reporting Rules that such a filing is not necessary.^[51] But can commentary released with an interim final rule modify an existing regulation that is itself not revised/amended/supplemented by the interim final rule?

Last, notwithstanding that the CTA as approved by Congress and implemented in the Reporting Rules has been destroyed by the IFR and its exclusion of U.S. persons and business entities created in the U.S., leaving only within its grasp business organizations formed under non-U.S. law, that grasp is easy to avoid. Assume a Spanish Sociedad de Responsabilidad Limitada (“S.A.”) has qualified to transact business in one or more states and has beneficial owners who are not U.S. persons. Absent the application of one of the twenty-four exemptions,^[52] the S.A. must file a BOIR—but it would rather not. Appreciating that regulatory or tax considerations need to be taken into account and may derail on particular facts this “easy out,” our S.A. can avoid the application of the CTA by forming a U.S. subsidiary, probably a single-member LLC, and transferring to it its U.S. operations. Then our S.A. withdraws its certificate(s) of authority to transact business. While the new subsidiary has as beneficial owners a mix of persons only some of whom are U.S. persons, none needs to be identified to FinCEN because the subsidiary itself, being what was previously a “domestic reporting company,” is exempt from a CTA reporting obligation.^[53] In its simplest application, our S.A. operates its U.S. operations through a single-member LLC that is not a CTA reporting company. And life goes on.

The Comments

Some 137 comments were submitted to FinCEN in response to the IFR.

Some of the comments are generously characterized as misguided. Included in this category are the following:

• The comment from an established 501(c)(3) organization about the complexity of the Reporting Rules. A 501(c)(3) is exempt from the reporting system, and it cannot get more simple than being categorically exempt.
• The person who wanted to know, now that BOIRs are no longer required, how to get a refund of the filing fee on the report he did file. Filing a BOIR did not have a filing fee.

Some of the comments lauded the IFR and the demise of the CTA, some going on to ask/insist that FinCEN purge the existing database,^[54] while others lamented the elimination of the beneficial ownership database and the loss of a tool intended to address the misuse of the business organizations.^[55] For example, the National District Attorneys Association (“NDAA”) wrote:

NDAA respectfully urges the Department to not proceed with this course of action. Weakening or narrowing the CTA will have devastating consequences for law enforcement’s ability to fight criminal enterprises that exploit shell companies to launder money, traffic drugs and weapons, and fund human trafficking and terrorism. For those of us charged with protecting public safety and administering justice in our communities, the CTA has been a long overdue and vital tool to pull back the veil of anonymity that has enabled criminal networks to thrive.^[56]

Similarly, the Main Street Alliance wrote:

We are disappointed by the IFR, because it will make it harder for honest small businesses to operate on a level playing field, harming our members overall, in ways that outweigh any compliance cost savings. We therefore ask FinCEN to withdraw this harmful IFR.^[57]

Shortly after the IFR was described, Senators Grassley and Whitehouse inquired of Secretary Bessent as to the authority by which the Treasury / FinCEN would so restrict the CTA:^[58]

We request that you provide us the legal basis for the Treasury Department’s policy decision to categorically suspend enforcement of the CTA’s reporting requirements for all U.S. citizens and domestic reporting companies. In addition, we request that you provide us with information about how you intend to satisfy the policy goals of the CTA. As part of your response, please address the following questions:

1. Has the Treasury Department followed or initiated the process required by the CTA to exclude an entity or class of entities from its reporting requirements?
2. What steps has Treasury taken to ensure that any change in the practice or rulemaking governing BOI reporting fulfills the law enforcement and national security purposes of the CTA?

To the knowledge of these authors, no response has ever been provided.^[59] In response to the IFR, other senators weighed in. In a letter dated May 27, 2025, Senators Wyden and Warren wrote:

By excluding more than 99% of previously in-scope companies and company owners from BOI reporting, the interim final rule would directly undermine Congress’ core policy goals in enacting the CTA – to improve law enforcement and national security outcomes by combating money laundering and other forms of illicit finance. . . .

Indeed, removing domestic companies, along with the U.S. owners of foreign reporting companies, from the purview of the CTA would entirely defeat the purpose of the CTA by continuing to allow almost all shell corporations operating in the U.S. to remain unknown to law enforcement and national security officials. The CTA itself established that it is the sense of Congress that “the collection of beneficial ownership information for [corporate] entities formed under the laws of the States is needed to . . . protect vital United States national security interests.” The interim final rule lacks any support in the legislative record, which clearly shows that Congress viewed the inclusion of domestic entities to be essential to accomplishing the goals of the CTA.

. . . The interim final rule fails to provide a reasonable explanation for how those objectives can be met while retaining the broad exemptions the rule provides.^[60]

In a comment letter, Senators Grassley and Whitehouse made numerous similar points, including the following:

• Congress wrote the CTA to cover domestic companies and U.S. persons;
• the CTA’s legislative history supports that Congress intended domestic entities to file BOIRs; and
• the information as to domestic entities is essential for national security, intelligence, and law enforcement agencies.

The letter concluded with the following:

The Treasury Department’s decision to categorically exempt all U.S. persons and domestic entities from the CTA’s beneficial ownership information reporting requirements is inconsistent with the text and original policy goals of the CTA. We encourage you to rescind this interim final rule and fully implement the CTA so that law enforcement and national security agencies around the country have access to information necessary to prevent human trafficking, terrorist financing, border smuggling, drug distribution, sanctions evasion, and many other categories of criminal activity.^[61]

Meanwhile, the CTA Litigation?

The CTA has been struck down in a number of cases as violative of the Commerce Clause or, in one instance, the Fourth Amendment; in other cases it has been found to be within Congress’s proper purview.^[62]

If one begins with the assumption that the current presidential administration desires, for all intents and purposes, to eliminate the CTA (that being the functional effect of the IFR),^[63] one must wonder why it continues to defend the CTA in the numerous cases that are pending in which the validity of the CTA has been challenged. While in numerous instances the government has moved to hold the case in abeyance pending the issuance of new final rules,^[64] it has not “thrown in the towel” and withdrawn any of the pending appeals.

The reason for that reticence in effecting the final destruction of the CTA may be the Financial Action Task Force (“FATF”). An international body of which the United States is a founding member, FATF traces its roots to 1989 and a declaration of the G-7 members to coordinate their efforts to prevent international and domestic money laundering.^[65] FATF promulgates recommendations as to practices that various states should implement in order to reduce the risk of money-laundering activities; over time, these recommendations have been updated.^[66] What is now labeled as Recommendation 24 provides that

Countries should assess the risk of misuse of legal persons for money laundering or terrorist financing, and take measures to prevent their misuse. Countries should ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently by competent authorities, through either the register of beneficial ownership or an alternative mechanism. Countries should not permit legal persons to issue bearer shares or bearer share warrants, and take measures to prevent the misuse of existing bearer shares and bearer share warrants. Countries should take effective measures to ensure that nominee shareholders and directors are not misused by money laundering or terrorist financing. Countries should consider facilitating access to beneficial ownership and control information by financial institutions and DNFBP’s undertaking the requirements set out in Recommendations 10 and 22.^[67]

FATF assesses the legal and regulatory environment of its member countries for the strength or weakness of their anti–money laundering systems; it was a desire, in connection with FATF’s review of the United States, to receive a passing grade as to Recommendation 24 that in part drove the adoption of the CTA.^[68] In the most recent preliminary assessment, the U.S. received a “largely compliant” grade as to Recommendation 24.^[69] It may be that the smallest shard of the CTA is being held onto to buttress an argument that the U.S. is still “largely compliant” with FATF Recommendation 24.

Is the IFR Legitimate?

This brings us to the most challenging question: Is the IFR and its almost complete elimination of the beneficial ownership reporting system provided for in the CTA statute itself and in the Reporting Rules a legitimate exercise of regulatory authority? A case (whether it is a good case remains to be seen) can be made that the IFR is illegitimate.^[70]

Recall that the CTA provides that additional exemptions beyond the original twenty-three may be adopted,^[71] and it is under that authority that the CTA’s reach has been cut back.^[72] This change is also justified as being consistent with the current administration’s goals,^[73] but nowhere does the CTA indicate that its essential construction and structure are subject to changes in the political winds. Rather, the CTA created a broad reporting requirement with twenty-three specific exemptions.^[74] These exemptions applied in certain cases to vanishingly small groups: those for “financial market utilit[ies]”^[75] and securities “exchange[s] or clearing agenc[ies]”^[76] cover a total of maybe fifty organizations nationwide;^[77] the middling circa 4,400 companies that have issued publicly traded securities;^[78] and the granddaddy of them all, the perhaps 650,000 companies that might take advantage of the large operating company exemption.^[79] Generously, these exemptions cumulatively removed half a million potential reporting companies from the CTA’s beneficial ownership reporting requirements. From there was created the new IFR “(xxiv) exemption,” which may be summarized as “and everyone else.”

There are significant issues with the implementation of the IFR, three of which we will here explore.^[80] The first is the venerable rule of construction ejusdem generis, the second is the Major Questions Doctrine, and the third is regulatory action in direct opposition to congressional findings. This discussion is not in any manner intended to exhaust the menu of potential challenges to the IFR or to be a fully comprehensive examination of any of these potential challenges.

Foundation of the Twenty-Three Exemptions

To set the stage,^[81] the CTA was approved by Congress in light of its determination that

(1) more than 2,000,000 corporations and limited liability companies are being formed under the laws of the States each year;

(2) most or all States do not require information about the beneficial owners of the corporations, limited liability companies, or other similar entities formed under the laws of the State;

(3) malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States;

(4) money launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures, much like Russian nesting “Matryoshka” dolls, across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process.^[82]

After defining what would ultimately be labeled a “reporting company,”^[83] Congress created twenty-three narrow exemptions to the reach of that class.^[84] It was then provided that the Secretary of the Treasury, working in cooperation with the Attorney General and Secretary of Homeland Security, could provide additional exemptions from classification as a reporting company.^[85] Tellingly for our purposes, this authorization follows a listing of twenty-three specific types of companies that were assessed, based upon either the degree of regulation to which they were otherwise subject or their structure, to not be likely candidates for the type of illicit activity that the CTA was intended to identify.^[86] The statute’s structure begins by defining the companies subject to the reporting rules, then defines twenty-three narrow exemptions to the statute’s application, and then grants regulatory authority to define additional exemptions.

Ejusdem Generis

The IFR adopted pursuant to this authority is anything but a narrow extension of the list of exempt reporting companies; rather, as noted above, it is “and everyone else.”^[87] The venerable rule of construction ejusdem generis directs that “when general words follow specific words in an enumeration describing a statutes’ legal subjects the general words are construed to embrace only objects similar in nature to those enumerated in the preceding specific words.”^[88]

We typically see this principle applied in listings to restrict the scope of general descriptions: a statute setting a rate of tax for motor vehicles such as cars, minivans, pickup trucks “and similar motorized modes of transport” will not be read to include boats because although they are means of transport and are motorized, they are entirely dissimilar from the fundamental character of the specific examples provided, i.e., wheeled land transport. While Congress in authorizing additional exemptions from the CTA’s intended reporting regime did not employ an express restriction in the nature of “and similar narrow exemptions,” it is hard to imagine that Congress did not have that in mind.

The point here is straightforward: when Congress enabled additional exemptions from classification of particular ventures as “reporting companies,” it could only have meant narrow exemptions similar to those already in place. Candidates for this treatment are the condominium and homeowner associations that, to their great chagrin, discovered that they are reporting companies.^[89] Similar cases can be made that federally licensed firearms dealers and holders of a Basic Permit for the manufacture of alcoholic beverages, classes of companies that are required to report their beneficial ownership to the federal government^[90] and that are otherwise subject to pervasive regulation, should be exempt.^[91] Another possibility would be to apply the “group” rules^[92] to allow the aggregation of employees in order to satisfy the employee head count component of the large operating company exemption, thereby returning that rule to what was likely its intended scope.

Turning over that coin, it cannot be credibly thought that Congress intended to create a license to entirely eliminate the CTA’s coverage as to its primary focus, namely the misuse of domestic organizations for nefarious purposes.^[93] The capacity to provide additional targeted exemptions from the CTA was not a license to in effect repeal the CTA—which brings us to the Major Questions Doctrine.

The Major Questions Doctrine

Under the Major Questions Doctrine as articulated by the U.S. Supreme Court, there are certain topics of major importance, either political or economic, that may not be delegated by Congress to an administrative agency absent clear and explicit authorization.^[94] While appearing inter alia in Utility Air Regulatory Group v. Environmental Protection Agency^[95] and King v. Burwell,^[96] it received its moniker in West Virginia v. Environmental Protection Agency,^[97] where Chief Justice Roberts wrote:

Nonetheless, our precedent teaches that there are extraordinary cases that call for a different approach—cases in which the history and the breadth of the authority that [the agency] has asserted, and the economic and political significance of that assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.^[98]

That opinion went on to observe that the doctrine has previously been applied to strike down the U.S. Food and Drug Administration’s assertion of its capacity to regulate tobacco products^[99] and the Centers for Disease Control and Prevention’s efforts to impose a nationwide eviction moratorium during the COVID-19 pandemic.^[100] Other cases referenced included one rejecting the attorney general’s assertion that he could “rescind the license of any physician who prescribed a controlled substance for assisted suicide, even in a State where such action was legal,”^[101] and another rejecting the Occupational Safety and Health Administration’s requirement that “84 million Americans . . . either obtain a COVID-19 vaccine or undergo weekly medical testing at their own expense.”^[102]

It is not enough that FinCEN and the Treasury can point to a provision of the CTA that colorably enables the IFR;^[103] there needs to be a clear statement of authority to effect the monumental changes effected by the IFR.^[104] It cannot be argued that reducing the scope of the CTA from perhaps thirty-five million reporting companies, a group including essentially every business corporation and LLC in the nation and their respective beneficial owners, to the paltry few non-U.S. organized companies that are also qualified to transact business in the U.S. is anything other than a monumental change in the regulatory scheme that Congress enacted. Even before Loper Bright, it was the law that “an agency’s interpretation of a statute is not entitled to deference when it goes beyond the meaning that the statute can bear.”^[105]

Now some may argue that the IFR is different in that it relieved the universe of domestic reporting companies and U.S. persons of an obligation, rather than imposing one, and therefore the Major Questions Doctrine does not apply. That differentiation is not valid. Rather, the Supreme Court, in MCI Telecommunications Corp. v. American Telephone & Telegraph Co., has already held that a regulatory determination to not regulate 40 percent of the subject industry was a “fundamental revision of the statute” and that “it may be a good idea, but it is not the idea Congress enacted into law.”^[106] Clearly, the statutory scheme adopted by Congress in the CTA is wildly at odds with the anemic program that exists under the IFR; Congress intended the former, and the latter should fall.

Acts in Opposition to Congressional Findings and Statutory Structure

In passing the CTA, Congress made explicit findings with respect to the nefarious use of U.S organized business organizations^[107] and directed that additional study be performed as to further potential weak spots in the beneficial ownership reporting system.^[108] In light of those findings, Congress dictated that there be instituted a system by which essentially all companies organized or doing business in the United States would centrally file information as to their beneficial ownership. Irrespective of whether any particular person thinks that to have been a good response, a bad response, or otherwise, it cannot be questioned what Congress did. “Based on this extensive record, Congress concluded that collecting beneficial ownership information is necessary to protect national security and promote U.S. interests abroad, regulate interstate and international commerce, and facilitate tax collection.”^[109] FinCEN, in promulgating the IFR, acted in direct opposition to Congress’s factual findings and the statutory structure of the CTA. In doing so, FinCEN and the Treasury acted without authority.^[110]

Nothing has changed since those findings were made and that structure defined. There has not arisen a beneficial ownership reporting system comparable to that anticipated by the CTA, and there has been no showing that the use of “shell corporations” for illegal purposes has been eliminated or even significantly reduced. In terms of both the prior Chevron deference model and today’s Loper Bright nondeferential model, an administrative agency, in implementing a statute, is bound by Congress’s predicate fact-findings. Put another way, an agency’s implementation of a statute is bound by not only the statutory language but also Congress’s factual findings made in support of the statutory scheme. Furthermore, the agency does not have the authority to modify the structure set forth by Congress in the statute. Congress’s intent was clearly a robust beneficial ownership database of both domestically created and foreign formed companies.^[111] FinCEN is way outside its lane in setting that aside via the IFR.

FinCEN, while an office of the Department of the Treasury, is a creation of Congress.^[112] As the subordinate, it is not in a position to disagree with and flagrantly disregard Congress’s intent as detailed in the factual findings and the structure of the enacted statute. There is no need to parse and negotiate with the testimony received by Congress in connection with the proposals that became the CTA; Congress wrote its findings, rationale, and intended structure into the statute.^[113] If a court cannot interpret a statute such that it nullifies itself,^[114] certainly an administrative agency created by Congress cannot nullify a statute by regulating away compliance therewith. In the same vein, if the courts are bound to “respect the formula that Congress prescribed,”^[115] how can an administrative agency be less bound?

No doubt there are readers taking umbrage at this challenge to the IFR’s legitimacy as they view the CTA’s beneficial ownership reporting system to be “a bad idea” or “an invasion of privacy” or “governmental overreach” or “clearly a plot of the Illuminati working in concert with the Priory of Sion backed by the Masons. Oh, and the Knights Templar—can’t forget them.” Those views are not the point. There exists within the rule of law legitimate paths to challenge actions taken by Congress.^[116] An unelected regulatory agency ignoring congressional findings and directions is not a legitimate act and directly undermines the rule of law.^[117]

While the current administration likes to focus upon the charge to “minimize[e] burdens on reporting companies associated with the collection of beneficial ownership information,”^[118] by doing so they ignore that said mission is to be accomplished in the context of an obligation to “collect information in a form and manner that it is reasonably designed to generate a database that is highly useful to national security, intelligence and law enforcement agencies and Federal functional regulators.”^[119] The charge is not to “minimize the regulatory burden” as a freestanding objective but rather to do so in the context of organizing the BOIR database. Eliminating from an intended database more than 99 percent of the companies falling within the statutorily defined class of “reporting companies” does not yield a database that is “highly useful,” and doing so is not “consistent with the purposes of this title.”^[120] Not only does the IFR conflict with congressional findings, the IFR squarely ignores and negates Congress’s directions as to the objective of the database and the tensions to be reconciled in its design.

Further to its questionable validity, the IFR is an extreme and unworkable solution to the problems presented by the CTA, which is itself an extreme and unworkable solution to problem of beneficial ownership anonymity. Like the CTA, the IFR has come under vigorous attack^[121] and may be unenforceable. FinCEN’s stridency in the demands it made under its initial rules for implementation of the CTA and then, under a new administration, in its extremist limitations on the application of those rules, has effectively left the issues of the determination of beneficial ownership unaddressed. Regardless of whether the IFR is legally defective, the next steps in finalizing the IFR should serve as an opportunity to consider the concerns of both the business community and law enforcement in the thoughtful development of workable rules to address this issue.

The authors claim no particular insight into the workings of the Treasury or FinCEN, and as such know nothing about the status of a new “final” reporting rule to replace the IFR, it promised for this calendar year.^[122] That said, if the Treasury and FinCEN are aware of the questionable legality of the system put in place by the IFR, they may hold off on issuing a final rule in order to preclude a challenge.^[123]

Stay Tuned

In the next installment of this series^[124] we will consider the soon-to-be-effective New York LLC Transparency Act, a statute currently nullified by the IFR.

1. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting in Limbo, Bus. L. Today (Dec. 9, 2025). ↑

2. The Reporting Rules appear at 31 C.F.R. § 1010.380(a) et seq. As noted, the “final” pre–Interim Final Rule (“IFR”) Beneficial Ownership Information Report (“BOIR”) regulations were released in Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022). The final rules followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 69920 (Dec. 8, 2021) (notice of proposed rulemaking (“NPRM”)), which itself followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17557 (Apr. 5, 2021) (advance notice of proposed rulemaking (“ANPR”)). Those “final” regulations detail certain due dates, amended by Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66730 (Sept. 28, 2023); supplemented with regard to the use of FinCEN identifiers by the release of Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities, 88 Fed. Reg. 76995 (Nov. 8, 2023); and expanded with regard to the exemption for public utilities (31 C.F.R. § 1010.380(c)(2)(xvi)) in Update to the Public Utility Exemption Under the Beneficial Ownership Information Reporting Rule, 89 Fed. Reg. 83782 (Oct. 18, 2024)—collectively, the “Reporting Rules.” To be clear, when the Reporting Rules are herein referenced, we refer to the regulations in effect prior to the IFR. ↑

3. See Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, The Corporate Transparency Act: Are Rumors of Its Death Exaggerated?, Bus. L. Today (Mar. 17, 2025). That article followed Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, How FinCEN Stole Christmas: The Corporate Transparency Act, Year 1, Bus. L. Today (Jan. 13, 2025) and Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, The Corporate Transparency Act Is Still on Pause, but Less So, Bus. L. Today (Feb. 6, 2025). ↑

4. See Letter from Sheldon Whitehouse and Charles E. Grassley, U.S. Senators, to Scott Bessent, U.S. Sec’y of the Treasury (Mar. 10, 2025). ↑

5. On March 21, 2025, FinCEN released the IFR, which appeared in the Federal Register on March 26. ↑

6. See, e.g., Press Release, U.S. Dep’t of the Treasury, Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies (Mar. 2, 2025) (“The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”). ↑

7. See Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension, 90 Fed. Reg. 13688 (Mar. 26, 2025) [hereinafter the “IFR Release”]. ↑

8. See Press Release, Fin. Crimes Enf’t Network, FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons, Sets New Deadlines for Foreign Companies (Mar. 21, 2025). ↑

9. This notice provided:

   Beneficial Ownership Information Reporting

   [Updated March 21, 2025] All entities created in the United States—including those previously known as “domestic reporting companies”—and their beneficial owners are now exempt from the requirement to report beneficial ownership information (BOI) to FinCEN. Existing foreign companies that must report their beneficial ownership information have at least an additional 30 days from the date of publication of the interim final rule. For more information, see press release and alert.

   Notice, Fin. Crimes Enf’t Network (updated Mar. 21, 2025). ↑

10. See Alert, Fin. Crimes Enf’t Network, Alert: FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons, Sets New Deadlines for Foreign Companies (updated Mar. 21, 2025):

    Today, the Financial Crimes Enforcement Network (FinCEN) announced that, consistent with the Department of the Treasury’s March 2, 2025, announcement, it is issuing an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.

    In that interim final rule, FinCEN revises the regulatory definition of “reporting company” to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements. Thus, through this interim final rule, all entities created in the United States—including those previously known as “domestic reporting companies”—and their beneficial owners will be exempt from the requirement to report BOI to FinCEN.

    However, foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines. These foreign entities will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.

    Upon the publication of the interim final rule, the following deadlines apply for foreign entities that are reporting companies:

    • Reporting companies registered to do business in the United States before the date of publication of the interim final rule must file BOI reports no later than 30 days from that date.
    • Reporting companies registered to do business in the United States on or after the date of publication of the interim final rule have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

    In accord with its prior notices and the Department of the Treasury’s March 2, 2025, announcement, FinCEN is applying all exemptions and deadline extensions in the interim final rule as of today, in advance of formal publication in the Federal Register, and will further not enforce any beneficial ownership reporting penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners.

    FinCEN also released a series of questions and answers about the IFR. Interim Final Rule: Questions and Answers, Fin. Crimes Enf’t Network (last visited Nov. 18, 2025) [hereinafter IFR FAQs]. ↑

11. The Reporting Rules as amended, including as amended by the IFR, are set forth in fully annotated form in Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, CTA Beneficial Ownership Reporting Rules, Annotated, Bus. L. Today (Dec. 10, 2025), published in concert with this article. ↑

12. See 31 C.F.R §1010.380(c)(1)(i) (prior to the IFR); see also 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:9 (Dec. 2025). ↑

13. There is also a change of the reporting rule for foreign pooled funds. Under the Reporting Rules, a foreign pooled fund, on its BOIR, was obligated to identify “one individual who exercises substantial control over the entity.” 31 C.F.R. § 1010.380(b)(2) (before modification by the IFR). As modified by the IFR, the one person to be identified is not to be a U.S. person. See 31 C.F.R. § 1010.380(b)(2)(iii) (after modification by the IFR) (“. . . except the report shall include the information required under paragraph (b)(1) of this section solely with respect to an individual who exercises substantial control over the entity if that individual is not a United States person”); see also IFR FAQ 4. ↑

14. See Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59525 (“FinCEN expects that a reporting company will always identify at least one beneficial owner under the ‘substantial control’ component, even if all other individuals are subject to an exclusion or fail to satisfy the ‘ownership interests’ component.”). ↑

15. See 31 C.F.R. § 1010.380(d). ↑

16. See id. § 1010.380(d)(2)(ii)(C). ↑

17. See id. §§ 1010.380(d)(3)(iv), 1010.380(A)(2)(iii). ↑

18. See id. § 1010.380(c)(2); see also Ribstein, Keatinge & Rutledge, supra note 12, § 4A:11. ↑

19. See 31 C.F.R. § 1010.380(c)(2)(xxiv) (exempting from classification as a “reporting company” “[a]ny entity that is: (A) A corporation, limited liability company, or other entity; and (B) Created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe”). ↑

20. See id. § 1010.380(d)(3)(i). ↑

21. See id. § 1010.380(c)(1)(ii) (“any entity”). ↑

22. See Ribstein, Keatinge & Rutledge, supra note 12, § 4A:10. ↑

23. See Jodi Vittori, Another Anti-Corruption Pillar Crumbles, FP (Foreign Pol’y) (Apr. 7, 2025). ↑

24. See Thomas W. Antonucci, Vesna K. Harasic-Yaksic & Ira B. Mirsky, FinCEN Guts Corporate Transparency Act; Narrows Scope to Cover Only Foreign Companies and Beneficial Owners, Wiley (Mar. 25, 2025). ↑

25. See Ross P. Keogh & McKenna R. Ford, FinCEN Interim Rule Significantly Limits Application of CTA: Domestic Reporting Companies Exempt from BOI Reporting, Parsons Behle & Latimer (Apr. 1, 2025). ↑

26. See Bryan R. Walters, FinCEN Eliminates Corporate Transparency Act’s Reporting Obligations for U.S. Persons, Nat’l L. Rev. (Mar. 24, 2025) (“On March 21, 2025, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released an interim final rule (Interim Rule) that broadly eliminates Beneficial Ownership Information (BOI) reporting under the Corporate Transparency Act (CTA) for all U.S. reporting companies and all U.S. beneficial owners of foreign reporting companies.”). ↑

27. See Brett Erickson, Australia Is Closing the Money Laundering Loopholes the US Keeps Open, Hill (Oct. 28, 2025) (“The Corporate Transparency Act, intended to expose shell-company owners, was hollowed out by exemptions that removed most domestic firms from reporting.”). ↑

28. See Corporate Transparency Act: In Like a Lion, Out Like a Lamb, Kutak Rock (Mar. 24, 2025). ↑

29. Any claim that the CTA was “decimated” is inaccurate and understates the state of affairs—in a decimation (decimate), one in ten is killed. See, e.g., Polybius, Histories bk. VI, § VI, at 331 (W.R. Paton trans.); see also Plutarch, Antony 39:7 (“Antony was enraged, and visited those who had played the coward with what is called decimation. That is, he divided the whole number of them into tens and put to death that one from each ten upon whom the lot fell.”). ↑

30. See Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59549 (“FinCEN estimates that there will be approximately 32.6 million reporting companies in Year 1, and 5 million additional reporting companies each year in Years 2–10.”); id. at 59584 (“FinCEN estimates that there will be approximately 32.6 million existing reporting companies and 5 million new reporting companies formed each year. (citation omitted)). That same release provided: “Summing the estimates of both domestic and foreign entities, the total number of existing entities in 2024 that may be subject to the reporting requirements is 36,581,506 and the total number of new companies annually thereafter is 5,616,362.” Id. at 59565 (citation omitted). ↑

31. See 31 C.F.R. § 1010.380(c)(2)(xxiv) (as created by the IFR). ↑

32. See IFR Release, 90 Fed. Reg. at 13695 (“Estimated Number of Respondents: 11,667 reporting companies per year, on average.”); id. at 13695 n.51 (“This estimate is based on a three-year average that assumes all reporting companies that were previously expected to have a reporting obligation, and would retain an obligation under the interim final rule, but did not already file a BOIR with FinCEN in calendar year 2024 (approximately 0.6 percent of the total original population, or 20,000 reporting companies) would come into compliance in year one and that approximately 5,000 new reporting companies would file their first report in each of years one through three.”). ↑

33. See Maureen Leddy, Groups Sound Alarm After Treasury Backtracks on Beneficial Ownership Reporting, Thomson Reuters (Mar. 10, 2025) (“Over 99% of entities previously subject to the Corporate Transparency Act’s reporting requirements could be exempt after Treasury announced a shift in focus to foreign entities last week, said the FACT Coalition, a nonpartisan coalition aimed at combating illicit finance.”). ↑

34. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

35. In the Reporting Rules, the test was whether the business organization was “created” by a secretary of state or equivalent office filing. See 31 C.F.R. § 1010.380(c)(1)(i)(C); see also Thomas E. Rutledge & Robert R. Keatinge, LLPs Are Not CTA Reporting Companies, Bus. L. Today (Oct. 10, 2024); Thomas E. Rutledge, Kentucky Business Organizations “Created” by a Filing with the Secretary of State, 113 Ky. L.J. Online 1 (May 2, 2025). ↑

36. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

37. See id. § 1010.380(d)(4); IFR FAQ 3 (“Reporting companies do not need to report BOI for any U.S. person, and U.S. persons are exempt from having to provide BOI with respect to any reporting company for which they are a beneficial owner.”). ↑

38. See 31 C.F.R. §§ 1010.380(e), 1010.380(b)(ii). ↑

39. See id. § 1010.380(b)(1)(ii) (requiring that an initial BOIR set forth information as to “every individual who is a company applicant with respect to such reporting company”). ↑

40. The same point was raised in comment letters including those from Wolters Kluwer (May 22, 2025), American College of Real Estate Lawyers (May 20, 2025), and Stephen Liss (Dungey Dougherty PLLC) (May 6, 2025). ↑

41. See also Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59525 (“FinCEN expects that a reporting company will always identify at least one beneficial owner under the ‘substantial control’ component . . . .”); Fin. Crimes Enf’t Network, Small Entity Compliance Guide 16 (Dec. 2024) (“FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and therefore that every reporting company will be able to identify and report at least one beneficial owner to FinCEN.”); Fin. Crimes Enf’t Network, Frequently Asked Questions (“FAQs”), FAQ D.1 (Oct. 3, 2024) (“FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and therefore that every reporting company will be able to identify and report at least one beneficial owner to FinCEN.”). ↑

42. It is assumed that none of the twenty-four exemptions applies. ↑

43. See 31 C.F.R. § 1010.380(c)(2)(xxiv) (as created by the IFR). ↑

44. See IFR Release, 90 Fed. Reg. at 13692 (“Foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirement to report any beneficial owners.”). ↑

45. See 31 C.F.R. § 1010.380(b) (“Each [BOIR] shall be filed with FinCEN in the form and manner that FinCEN shall prescribe in the forms and instructions for such report or application, and each person filing such report or application shall certify that the report or application is true, correct, and complete.”); see also Robert R. Keatinge & Thomas E. Rutledge, Impossible Things: Compliance with the Corporate Transparency Act When Beneficial Owners or Company Applicants Are Nonresponsive, Bus. L. Today (Dec. 16, 2024). ↑

46. See generally Ribstein, Keatinge & Rutledge, supra note 12, § 4A:25. ↑

47. See 31 C.F.R. § 1010.380(b)(4)(iii)(A). This issue was identified in a number of the comment letters including those from Wolters Kluwer (May 22, 2025), American College of Real Estate Lawyers (May 20, 2025), and Stephen Liss (Dungey Dougherty PLLC) (May 6, 2025). ↑

48. This same point was raised in comment letters including those from Wolters Kluwer (May 22, 2025), American College of Real Estate Lawyers (May 20, 2025), Stephen Liss (Dungey Dougherty PLLC) (May 6, 2025), and the National Public Records Research Association (May 8, 2025). ↑

49. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

50. See id. § 1010.380(b)(3)(ii). ↑

51. See IFR Release, 90 Fed. Reg. at 13688 (“Under this interim final rule, entities previously defined as ‘domestic reporting companies’ are exempted from the reporting requirements and do not have to report BOI to FinCEN, or update or correct BOI previously reported to FinCEN.”); see also IFR FAQ 1 (“Companies created in the United States are no longer considered [to be] reporting companies and therefore do not need to report BOI to FinCEN under the Corporate Transparency Act.”). ↑

52. Including that it does not satisfy the large operating company exemption. See 31 U.S.C. § 5336(a)(11)(B)(xxi); 31 C.F.R. § 1010.380(c)(2)(xxi); see also Ribstein, Keatinge & Rutledge, supra note 12, § 4A:11. ↑

53. See 31 C.F.R. § 1010.380(c)(2)(xxiv). ↑

54. See Carmen Molina Acosta, FinCEN Plans to Delete Data on U.S. Companies from Beneficial Ownership Database, Int’l Consortium Investigative Journalist (Sept. 17, 2025). On September 8, some eighty-five members of Congress wrote to Secretary Bessent, stating, “We also acknowledge that millions of U.S. small businesses have already registered with FinCEN. This data must be immediately destroyed to protect the privacy of small business owners.” Letter from Warren Davidson et al., Cong. Member, to Scott Bessent, U.S. Sec’y of the Treasury (Sept. 8, 2025). ↑

55. See Vittori, supra note 23; CREW Supports the Corporate Transparency Act Against Lobbying and Congressional Pressure, CREW (Apr. 30, 2024). ↑

56. See Comment Letter from National District Attorneys Association (undated). In a similar vein, the National Narcotic Officers’ Associations’ Coalition, in its comment letter dated May 27, 2025, wrote:

    Requiring businesses to disclose their true beneficial owners under the CTA is a critical tool for law enforcement. It reduces criminals’ ability to obscure financial trails and helps investigators follow the money – a proven strategy in combating organized criminal activity, particularly drug trafficking. With limited resources, law enforcement needs every advantage. The CTA, if fully implemented, would significantly strengthen efforts to dismantle these criminal networks. ↑

57. See Comment Letter from Main Street Alliance (May 27, 2025). ↑

58. See Letter from Whitehouse & Grassley, supra note 4. ↑

59. See Letter from Elizabeth Warren & Maxine Waters, U.S. Senators, to Scott Bessent, U.S. Sec’y of the Treasury (Sept. 15, 2025) (citations omitted):

    Given that your prior responses to congressional inquiries provided no meaningful information about how Treasury is addressing the national security and illicit finance concerns documented over many years—including in Treasury rulemaking efforts—we ask you to answer the following questions by September 26, 2025:

    1. Have you conducted any analysis of the extent to which terrorists, human traffickers, drug cartel leaders, foreign adversaries, or other malign actors and facilitators will be able to abuse the U.S. financial system absent enforcement of the Corporate Transparency Act?
       1. If so, please provide that analysis in writing.
       2. If not, what plans do you have in place to ensure the U.S. financial system is not exploited by terrorists and criminals using opaque corporate structures while Treasury refuses to enforce the law?
    2. Do you disagree with national security and law enforcement officials across Republican and Democratic administrations who emphasized that centralized beneficial ownership information reporting would assist law enforcement and protect our national security? ↑

60. See Comment Letter from Ron Wyden & Elizabeth Warren, U.S. Senators (May 27, 2025). ↑

61. See Comment Letter from Charles E. Grassley & Sheldon Whitehouse, U.S. Senators, to Scott Bessent, U.S. Sec’y of the Treasury (May 27, 2025). ↑

62. These cases are reviewed in the three articles cited in footnote 3. ↑

63. See, e.g., Press Release, supra note 6. ↑

64. For example, in the National Small Business United v. U.S. Department of the Treasury case that is currently pending before the U.S. Court of Appeals for the Eleventh Circuit, on March 11 of this year the court ordered all parties to file supplemental briefs addressing the then-described but not-yet-issued IFR and how it “impacts the analysis of National Small Business Association’s facial challenge to the statute in this case.” No. 24-10736 (docket item 113). In its supplemental filing, the government stated, “This change in how the Executive Branch is implementing the CTA does not directly affect this Court’s analysis of plaintiffs’ facial constitutional challenge, which turns on whether the statutory reporting requirements are within Congress’s broad powers under the Commerce Clause and Necessary and Proper Clause.” Supplemental Brief for Appellants at 1 (docket item 115). In Texas Top Cop Shop v. Bondi, pending currently before the U.S. Court of Appeals for the Fifth Circuit, on March 24 the parties were directed to “file simultaneous letter briefs addressing the [IFR’s] impact, if any, on this appeal.” No. 24-40792 (docket item 344). In response, the government wrote:

    Although the regulatory changes underscore that plaintiffs are not entitled to a preliminary injunction, they do not render this case moot. As noted, Treasury “is accepting comments on th[e] interim final rule” and “will assess the exemptions, as appropriate, in light of those comments and intends to issue a final rule this year.” 90 Fed. Reg. at 13,690. If that process results in a final rule exempting domestic companies from the reporting requirements, any requests for relief by those companies would likely be moot. At this point, however, the rulemaking remains ongoing. In any event, although plaintiffs’ underlying claim might become moot at the conclusion of the rulemaking, the government’s appeal would not become moot because the district court’s preliminary injunction extends beyond plaintiffs to foreign companies and thus would continue to have effect even if the narrowing of the reporting rule is reaffirmed by the final rule.

    (docket item 349.) ↑

65. See Kevin L Shepherd, The Financial Action Task Force, the Gatekeeper Initiative, and the Risk-Based Approach to Client Due Diligence nn.1–7 & accompanying text (rev. June 15, 2025) (copy in possession of authors); see also id. nn.18–34 & accompanying text. This paper is a chapter in the forthcoming Suzanne Shier & Carolyn Reers, Guide to International Estate Planning (3d ed., ABA forthcoming 2025). ↑

66. See id. nn.35–43 & accompanying text. The current recommendations are available at Fin. Action Task Force, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations (updated Oct. 2025). ↑

67. Fin. Action Task Force, supra note 66, at 22. ↑

68. William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, H.R. 6395, 116th Cong., Pub. L. No. 116-283, 134 Stat. 338, § 6402(5) (2021) (not codified in U.S. Code) [hereinafter NDAA] (“Federal legislation providing for the collection of beneficial ownership information for corporations, limited liability companies, or other similar entities formed under the laws of the States is needed to— . . . (E) bring the United States into compliance with international anti–money laundering and countering the financing of terrorism standards.”). ↑

69. See Press Release, U.S. Dep’t of the Treasury, Financial Action Task Force Highlights Treasury’s Efforts to Counter Illicit Finance (Mar. 26, 2024) (“Today, the Financial Action Task Force (FATF)—the global standard-setting body for anti–money laundering, countering the financing of terrorism, and countering proliferation financing (AML/CFT/CPF)—announced that the United States has been upgraded to “largely compliant” with FATF Recommendation 24, which relates to beneficial ownership transparency for legal persons.”); see also Fin. Action Task Force, Anti–Money Laundering and Counter-Terrorist Financing Measures: United States 7th Follow-Up Report & Technical Compliance Re-Rating (Mar. 2024). ↑

70. The authors intentionally exclude from this discussion the important question of who might have standing to make these and other arguments as to the validity of the IFR. That is a discussion for another day. ↑

71. See 31 U.S.C. § 5336(a)(11)(B)(xxiv). ↑

72. See IFR Release, 90 Fed. Reg. at 13690:

    FinCEN is exercising the authority under 31 U.S.C. 5336(a)(11)(B)(xxiv) to exempt domestic reporting companies from the Reporting Rule and the authority under 31 U.S.C. 5318(a)(7) to exempt foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company, as well as to exempt U.S. persons from having to provide such information to the foreign reporting companies for which they are a beneficial owner.

    See also id. at 13695. ↑

73. See, e.g., Press Release, supra note 6 (“Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest. ‘This is a victory for common sense,’ said U.S. Secretary of the Treasury Scott Bessent. ‘Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.’”). ↑

74. See 31 U.S.C. § 5336(a)(11)(B); see also 31 C.F.R. § 1010.380(c)(2). ↑

75. See 31 U.S.C. § 5336(a)(11)(B)(xvii); see also 31 C.F.R. § 1010.380(c)(2)(xvii). ↑

76. See 31 U.S.C. § 5336(a)(11)(B)(viii); see also 31 C.F.R. § 1010.380(c)(2)(viii). ↑

77. See Ribstein, Keatinge & Rutledge, supra note 12, § 4A:11 n.3. ↑

78. See 31 U.S.C. § 5336(a)(11)(B)(i); see also 31 C.F.R. § 1010.380(c)(2)(i). ↑

79. See 31 U.S.C. § 5336(a)(11)(B)(xxi); see also 31 C.F.R. § 1010.380(c)(2)(xxi). In application, it is likely that FinCEN’s estimate of the number of companies able to avail themselves of the large operating company exemption overstated its availability. In practice, significant numbers of companies that on first blush would fall within the scope of this exemption were in fact excluded, often because of internally utilized employee leasing companies that deprived the operating company with the necessary $5 million or more of sales/revenue of the necessary employee count. ↑

80. No doubt any number of law students are out there working on law review notes on this topic; the authors would much like to hear from them. ↑

81. See also William Shakespeare, As You Like It act II, sc. 7, l. 139. ↑

82. NDAA § 6402(5). ↑

83. See 31 U.S.C. § 5336(a)(11) (“(A) means a corporation, limited liability company, or other similar entity that is—(i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.”). ↑

84. See 31 U.S.C. § 5336(a)(11)(B). While in concept a “foreign reporting company” is able to avail itself of certain of the twenty-three exemptions provided for in the CTA and the related Reporting Rules, in application many are not available to a foreign reporting company. ↑

85. See 31 U.S.C. § 5336(a)(11)(B)(xxiv):

    [A]ny 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. ↑

86. See Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59539 (“The CTA exempts from the definition of ‘reporting company’ twenty-three specific types of entities. Many of these exempt entities are already subject to substantial federal and/or state regulation or already have to provide their beneficial ownership information to a governmental authority.” (citation omitted)). ↑

87. Yes, it is true that what were previously classified as “foreign reporting companies” (see 31 U.S.C. § 5336(a)(11)(A)(ii) and 31 C.F.R. § 1010.380(a)(1)(ii)) are still subject to the Reporting Rules, but that group is vanishingly small (circa one-half of one percent) as to the intended scope of the CTA, and even to the extent they are preserved as having an obligation to file BOIRs, they do so on a significantly more limited basis, namely not identifying as a beneficial owner any U.S. person. ↑

88. See 2A Norman Singer & Sambie Singer, Sutherland Statutory Construction § 47:17 (Apr. 2025); see also Harrison v. PPG Indus., Inc., 446 U.S. 578, 601 (1989) (“The rule of ejusdem generis ordinarily ‘limits general terms which follow specific ones to matters similar to those specified.’ Gooch v. United States, 297 U.S. 124, 128, 56 S.Ct. 395, 397, 80 L.Ed. 522 (1936).”); id. (“It rests on the notion that statutes should be construed so that the ‘sense of the words . . . best harmonizes with the context and the end in view.’”). ↑

89. See Comty. Ass’ns Inst. v. Yellen, No. 1:24-cv-1597, 2024 WL 4571412, 2024 U.S. Dist. LEXIS 193958 (E.D. Va. Oct. 24, 2024), appeal filed, No. 24-2118 (4th Cir. 2024); see also Cmty. Ass’ns Inst. v. U.S. Dep’t of the Treasury, No. 24-2118, 2025 WL 1824824 (4th Cir. May 6, 2025). In response to the IFR, the Community Associations Institute reiterated its request for relief from the CTA’s reporting system. See Comment Letter from Community Associations Institute (May 27, 2025). ↑

90. See Bureau of Alcohol, Tobacco, Firearms & Explosives, U.S. Dep’t of Just., Application for Federal Firearms License, Part B; Alcohol & Tobacco Tax & Trade Bureau, Dep’t of the Treasury, Application for Basic Permit Under the Federal Alcohol Administration Act §§ 8, 9. ↑

91. See also Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59539 (“The CTA exempts from the definition of ‘reporting company’ twenty-three specific types of entities. Many of these exempt entities are already subject to substantial federal and/or state regulation or already have to provide their beneficial ownership information to a governmental authority.” (citation omitted)). ↑

92. See I.R.C. §§ 414(b)–(c), 1563(a); see also Fin. Crimes Enf’t Network, Frequently Asked Questions (“FAQs”), FAQ L.4 (Nov. 26, 2024) (providing that employee count aggregation is not permitted for purposes of the large operating company exemption). ↑

93. See supra note 82 and accompanying text. ↑

94. The characterization of “major questions” as a “doctrine” was traced in Allison Orr Larson, Becoming a Doctrine, 76 Fla. L. Rev. 1 (2024); see also West Virginia v. Env’t Prot. Agency, 597 U.S. 697, 724 (2022) (“As for the major questions doctrine ‘label[ ],’ post, at [], it took hold because it refers to an identifiable body of law that has developed over a series of significant cases all addressing a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted. Scholars and jurists have recognized the common threads between those decisions. So have we.”). ↑

95. 573 U.S. 302 (2014). As a concession to the brevity of life, only the official reporter cites for the various decisions of the U.S. Supreme Court are provided. ↑

96. 576 U.S. 473 (2015). ↑

97. 597 U.S. 697 (2022). ↑

98. Id. at 721. ↑

99. Id. (citing Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)). ↑

100. Id. (citing Ala. Ass’n of Realtors v. Dep’t of Health & Hum. Servs., 594 U.S. 758 (2021)). ↑

101. See id. at 722 (citing Gonzales v. Oregon, 546 U.S. 243 (2006)). ↑

102. See id. at 723 (citing Nat’l Fed’n of Indep. Bus. v. Dep’t of Lab., 595 U.S. 109 (2022)). ↑

103. See id. at 722–23 (“All of these regulatory assertions had a colorable textual basis. And yet, in each case, given the various circumstances, ‘common sense as to the manner in which Congress [would have been] likely to delegate’ such power to the agency at issue . . .” (citation omitted)). ↑

104. See id. at 723 (“Extraordinary grants of regulatory authority are rarely accomplished through ‘modest words,’ ‘vague terms,’ or ‘subtle device[s].’” (citing Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001))); id. (“Agencies have only those powers given to them by Congress, and ‘enabling legislation’ is generally not an ‘open book to which the agency [may] add pages and change the plot line.’ E. Gellhorn & P. Verkuil, Controlling Chevron-Based Delegations, 20 Cardozo L. Rev. 989, 1011 (1999). We presume that ‘Congress intends to make major policy decisions itself, not leave those decisions to agencies.’”). ↑

105. MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 229 (1994) (citing Pittston Coal Grp. v. Sebben, 488 U.S. 105, 113 (1988); Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984)). Chevron was overruled as to a different issue by Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). ↑

106. MCI Telecomms. Corp., 512 U.S. at 231–32 (“But even assuming it is, we think an elimination of the crucial provision of the statute for 40% of a major sector of the industry is much too extensive to be considered a ‘modification.’ What we have here, in reality, is a fundamental revision of the statute, changing it from a scheme of rate regulation in long-distance common-carrier communications to a scheme of rate regulation only where effective competition does not exist. That may be a good idea, but it was not the idea Congress enacted into law in 1934.”). ↑

107. See supra note 82 and accompanying text. ↑

108. See NDAA §§ 6502–6508. See also U.S. Gov’t Accountability Off., GAO-25-106955, Illicit Finance: Treasury Should Monitor Partnerships and Trusts for Future Risks (Dec. 19, 2024). ↑

109. Brief of Senators Sheldon Whitehouse, Ron Wyden, Elizabeth Warren, Jack Reed, & Representatives Maxine Waters as Amici Curiae in Support of Defendants-Appellants, Nat’l Small Bus. United v. U.S. Dep’t of the Treasury, No. 5:22-cv-1448 (11th Cir. filed Apr. 22, 2024) (No. 24-10736). ↑

110. See Chevron, U.S.A., 467 U.S. at 842–43, overruled as to a different point by Loper Bright, 603 U.S. 369 (“When a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” (citation omitted)). See also BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (quoting Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992)) (“The preeminent canon of statutory interpretation requires [courts] to ‘presume that [the] legislature says in a statute what it means and means in a statute what it says there.’”). ↑

111. See also 31 U.S.C.A. § 5336(a)(11) (definition of “reporting company”). ↑

112. See id. § 310(a); see also Nat’l Fed’n of Indep. Bus. v. Dep’t of Lab., 595 U.S. 109, 117 (2022) (“Administrative agencies are creatures of statute.”). ↑

113. See supra note 82 and accompanying text; see also Zuni Pub. Sch. Dist. v. Dep’t of Educ., 550 U.S. 81, 94 (2007) (“To ascertain Congress’s intent, we begin with the statutory text because if its language is unambiguous, no further inquiry is necessary.”). ↑

114. See N.Y. State Dep’t of Soc. Servs. v. Dublino, 413 U.S. 405, 419–20 (1973) (“We cannot interpret federal statutes to negate their own stated purposes.”); see also Kress Stores of P.R., Inc. v. Wal-Mart P.R., Inc., 121 F.4th 228, 241 (1st Cir. 2024) (“When Congress enacts its purposes and findings into the text, ‘[w]e cannot interpret federal statutes to negate their own stated purposes.’ King v. Burwell, 576 U.S. 473, 493, 135 S.Ct. 2480, 192 L.Ed.2d 483 (2015) (quoting New York State Dep’t of Social Servs. v. Dublino, 413 U.S. 405, 419–20, 93 S.Ct. 2507, 37 L.Ed.2d 688 (1973)).”). Justice Scalia called this interpretive principle the “presumption against ineffectiveness.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 63 (2012). ↑

115. See Advoc. Christ Med. Ctr. v. Kennedy, 605 U.S. 1, 20 (2025). ↑

116. In the case of the CTA, those challenges have been reviewed in the three articles by Houston et al., supra note 3. ↑

117. See also Declaration of Independence (objecting that King George III had declared “themselves invested with power to legislate for us in all cases whatsoever”). ↑

118. See NDAA § 6402(8)(A); see also Press Release, supra note 6. ↑

119. NDAA § 6402(8)(C). Section 6402(8) of the CTA provides that

     (8) in prescribing regulations to provide for the reporting of beneficial ownership information, the Secretary shall, to the greatest extent practicable consistent with the purposes of this title—

     (A) seek to minimize burdens on reporting companies associated with the collection of beneficial ownership information;

     (B) provide clarity to reporting companies concerning the identification of their beneficial owners; and

     (C) collect information in a form and manner that is reasonably designed to generate a database that is highly useful to national security, intelligence, and law enforcement agencies and Federal functional regulators. ↑

120. Id. ↑

121. See, e.g., Letter from Ian Gary, Exec. Dir., FACT Coalition, et al., to Andrea Gacki, Dir., FinCEN (May 27, 2025); see also U.S. Gov’t Accountability Off., GAO-25-107143, Fraud in Federal Programs: FinCEN Should Take Steps to Improve the Ability of Inspectors General to Determine Beneficial Owners of Companies (updated June 9, 2025). ↑

122. In written testimony to Congress on September 9, FinCEN Director Gacki wrote: “FinCEN accepted comments on the interim final rule through May 27, 2025, and intends to issue a final rule this year.” Statement by FinCEN Director Andrea M. Gacki Before the House Committee on Financial Services, Subcommittee on National Security, Illicit Finance, and International Financial Institutions (Sept. 9, 2025). However, in a status report filed by the government on December 1, 2025, in the Community Associations Institute appeal pending currently before the U.S. Court of Appeals for the Fourth Circuit (Community Associations Institute, Inc. v. Dept. of the Treasury, No. 24-2118, docket item 65), it was stated:

     FinCEN is currently reviewing comments regarding the interim final rule as part of its final rulemaking. Although the interim final rule stated that FinCEN “intend[ed] to issue a final rule this year,” id. at 13,689, FinCEN’s progress has been delayed by various factors, including the recent lapse in appropriations.

     In the Smith suit currently pending in Texas (Smith v. Dept. of the Treasury, No. 6:24-cv-336, E.D. Tex.), on December 3 the government filed a status report (docket item 53) that provides in part:

     FinCEN is currently reviewing comments regarding the interim final rule as part of its final rulemaking. Although the interim final rule stated that FinCEN “intend[ed] to issue a final rule this year,” FinCEN’s progress has been delayed by various factors, including the recent lapse in appropriations. (citation omitted).

     In response, on December 4 the plaintiffs filed a response (docket item 54) that provides in part:

     Plaintiffs’ summary judgment motion has been on file for almost seven months. On July 2, 2025, the Court ordered this case be held in abeyance until further order of the Court. At the time, Defendants argued that this abeyance “will be less than six months” because the Financial Crimes Enforcement Network (FinCEN) intended to issue a final rule by the end of the year. Plaintiffs argued that an abeyance tied to a final rule is effectively an open-ended stay because FinCEN’s self-imposed year-end deadline was not enforceable. . . .

     Indeed, as Plaintiffs previously explained, Defendants’ ongoing rulemaking will not moot Plaintiffs’ challenge to the statute, regardless of the outcome of that rulemaking. Now that the Defendants’ stay appears to be completely open-ended, this Court should refuse to extend its abeyance beyond the December 31 deadline that Defendants originally represented to this Court in support of their motion. There is no need for this case to sit in limbo forever. To the contrary, a final judgment from this Court on the merits (simply restating the reasoning from its judgment on preliminary relief) could provide needed guidance to the agency which, apparently, cannot figure out what it wants to do. (citations omitted)

     There is no equivalent action in either Texas Top Cop Shop (Texas Top Cop Shop v. Bondi, No. 24-40792, 5th Cir.) or National Small Business United (National Small Business United, Case No. 24-10736, 11th Cir.), but that could change quickly. ↑

123. This rationale is separate and apart from the possibility that with the IFR in place and the CTA rendered a nullity, neither the Treasury nor FinCEN is interested in devoting the energy needed to draft and promulgate a final rule. ↑

124. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the New York LLC Transparency Act, Bus. L. Today (Dec. 11, 2025). ↑

The Computer Fraud and Abuse Act of 1986 (“CFAA”)^[1] addresses fraud and related activities in connection with computers, including prohibiting unauthorized access to “protected computers” and obtaining information through such access. The CFAA can impose civil and criminal liability on anyone who “access[es] a computer without authorization” or by “exceeding authorized access” to a “protected computer.”^[2] In several cases employers have tried using the CFAA to pursue ex-employees for alleged violations of workplace computer use policies. Depending on the facts, it has not worked out well for those employers.

In a recent case, NRA Group, LLC vs. Durenleau,^[3] the U.S. Court of Appeals for the Third Circuit had occasion to review a case in which the plaintiff (National Recovery Agency) alleged that two ex-employees had violated the CFAA and the federal Defend Trade Secrets Act (“DTSA”),^[4] among other allegations. The defendants counterclaimed with allegations including sexual harassment, negligent hiring and retention, and retaliation under state and federal law.

On cross-motions for summary judgment, the district court entered judgment for the employees, Durenleau and Badaczewski, on all claims against them, staying their remaining sexual harassment claims against NRA pending appeal.

In analyzing the CFAA, the Third Circuit considered the U.S. Supreme Court decision in Van Buren v. United States.^[5] In its opening paragraph, the Court states, “In the wrong hands, the law becomes a hammer in search of a nail. This is one such case.” In applying Van Buren, the Court held that “[u]nder Van Buren, the ‘gates’ of access were ‘up’ for both women—neither hacked into NRA’s systems. No doubt Durenleau and Badaczewski violated NRA’s policies, but as employees they had access to the systems: Durenleau by the fact of her employment, and Badaczewski with Durenleau’s credentials. No one hacked anything by deploying code to enter a part of NRA’s systems to which they had no access.” The Court adopted the definition of “authorization” under the CFAA used by the district court by finding “an employee is authorized to access a computer when his employer approves or sanctions his admission to that computer.”

The Court went on to “hold that, absent evidence of code-based hacking, the CFAA does not countenance claims premised on a breach of workplace computer-use policies by current employees.” Affirming the district court’s grant of summary judgment for the ex-employees on all of NRA’s claims under the CFAA, it noted, “With today’s holding, we mean to turn future litigants to other causes of action so that we do not make ‘millions of otherwise law-abiding citizens [into] criminals.’ Van Buren, 593 U.S. at 394.”

In addressing the plaintiff’s DTSA claims, the Court stated that the statute protects information that, among other things, “‘derives independent economic value, actual or potential,’ from being kept secret.”^[6] The Court’s analysis focused on subpart (b) of 18 U.S.C. § 1839(3) and whether a password spreadsheet could have independent economic value to elevate it to the level of a trade secret. It held that “because the revealed content would have no economic value to NRA, there is no serious claim the passwords would either. That is because it is what the passwords protect, not the passwords, that is valuable.” The Court pointed out that “while the leak of actual trade secrets with independent economic value can endanger a business, NRA immediately remedied the problem by simply changing the passwords,” thereby blocking “the proprietary information that did have independent economic value: NRA’s business records and customer databases.” Bringing closure on the trade secret issue, the Court agreed with the district court and held that the passwords had no independent economic value and, as such, were not trade secrets under the DTSA.

In summary, the NRA Group, LLC, case underscores the need for businesspeople and their legal counsel to have a robust discussion when considering the appropriateness of bringing a CFAA claim. This includes consideration of the facts and how they align with the CFAA at that time. By way of example, without limitation:

• Did defendants engage in “unauthorized access” or exceed authorized access?
• Can the plaintiff demonstrate a qualifying loss exceeding $5,000 within a one-year period and which losses are related to the investigation, repair, or restoration of computer systems?
• Do the facts and applicable law support potential causes of actions other than the CFAA, such as breach of contract, business torts, negligence, fraud, etc., that may provide a remedy for employers when employees grossly transgress computer-use policies?

The bottom line is that employers and their legal counsel need to carefully consider claims they allege under the CFAA against ex-employees.

© 2025 Alan S. Wernick

1. 18 U.S.C. § 1030. ↑

2. See 18 U.S.C. § 1030(a). ↑

3. No. 24-1123, slip op. (3rd Cir. Oct. 7, 2025). ↑

4. 18 U.S.C. § 1836 et seq. ↑

5. 593 U. S. 374 (2021). ↑

6. NRA Group, LLC, slip. op. at 27 (quoting 18 U.S.C. § 1839(3)). ↑

In furtherance of prior statements as to its intent,^[1] on March 26, 2025, the Financial Crimes Enforcement Network (“FinCEN”) published in the Federal Register a new interim final rule (“IFR”) ^[2] governing the application of the Corporate Transparency Act (“CTA”)^[3] that significantly amended the until-then extant Reporting Rules.^[4] In so doing, FinCEN, following direction from the current administration, essentially destroyed the CTA.^[5] What was to be an integrated reporting requirement for all domestically organized business organizations (estimated to now number some thirty-five million) and foreign organized organizations qualified to transact business in one or more of the states (estimated to number twelve thousand), with respect to their beneficial owners and company applicants, will now address only the foreign organized companies. Furthermore, the foreign organized companies will benefit from a narrowed reporting regimen that will not require reporting of information as to any “United States person”^[6] who is a beneficial owner thereof.^[7]

This article is part of a series, comprised of three components, in which we will switch up the order in which matters are addressed. In this first installment we will first consider the general residential real estate geographic targeting orders (“GTOs”) that have been periodically updated over several years; next, we will consider the current status of FinCEN’s Southwest U.S. border GTO, both as issued and as most recently updated; finally, we will address the current status of the non-financed residential real estate reporting regulations. In the second installment of the series, we return to the CTA itself: building upon prior articles published in Business Law Today in, respectively, January,^[8] February,^[9] and March^[10] of this year, we review the terms of the IFR published in March of this year, the numerous comments that were submitted in connection therewith, and the status of the multitude of lawsuits that were filed challenging the CTA’s constitutionality; and share our thoughts on the deficiency of the IFR (i.e., it may not be a legitimate regulatory action and should be set aside). In the third and last installment of the series we will turn our attention to New York’s LLC Transparency Act and its status vis-à-vis the (to be generous) gutting of the CTA.

Geographic Targeting Orders^[11]

On August 2, 2017, the Countering America’s Adversaries Through Sanctions Act to facilitate sanctions, particularly against the Russian Federation and Iran, was approved.^[12] Section 243 thereof required the secretary of the Treasury to submit a report detailing steps taken to address various financial activities relating to the Russian Federation; those steps include the expansion of the number of GTOs or “other regulatory actions, as appropriate, to degrade illicit financial activity relating to the Russian Federation in relation to the financial system of the United States.”^[13] On August 22, 2017, in response to this mandate, FinCEN announced the issuance of residential real estate GTOs that require U.S. title insurance companies to identify the natural persons behind shell companies used to pay cash for high-end residential real estate in seven metropolitan areas; FinCEN also published an advisory to provide financial institutions and the real estate industry with information on the money-laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted without traditional financing.

Under the revised GTOs, title insurance companies are required to collect information on (i) “covered transactions” (certain acquisitions); (ii) by a “legal entity” (a corporation, limited liability company (“LLC”), partnership, or other similar business entity, whether formed under the laws of a state or of the United States or a foreign jurisdiction); (iii) of residential real property in certain locations made without a bank loan or similar form of external financing; (iv) that in part use currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, or a funds transfer. The information to be collected and reported includes the identity (including obtaining a copy of this individual’s driver’s license, passport, or other similar identifying documentation) of the individual primarily responsible for representing the purchaser and each “beneficial owner,” defined as each individual who, directly or indirectly, owns 25 percent or more of the equity interests of the purchaser. The report is made on a FinCEN Currency Transaction Report.^[14]

A number of GTOs have been issued over time, with differing (but typically cumulative) applications to different cities and regions and transaction thresholds (all for residential real estate),^[15] with the penultimate GTO issued April 19, 2025, covering the following transactions:

That GTO expired on October 9, 2025; and in anticipation of that event, a new GTO was issued on October 8. The new GTO tracked the prior GTO as to its geographic application and price thresholds. In the press release issued in the continuation with the delayed effective date of the RRE Rules reviewed below,^[16] FinCEN wrote, “To implement this extension, FinCEN issued a temporary order granting exemptive relief from the reporting requirements. In the interim, any Real Estate Geographic Targeting Orders will remain in effect.”^[17]

To date, the burden of complying with these GTOs has been limited to the title insurance companies that participate in the transactions that are within the geographic range and are purchases of residential real property purchased by a legal entity without a bank loan or similar financing with payment by “currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency.”^[18] For these purposes, “legal entity” is defined as “a corporation, limited liability company, partnership, or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction,” but excluding entities that are traded on a securities exchange or a subsidiary thereof. In turn, the beneficial owners of each legal entity must be identified, with “beneficial owner” defined as “each individual who, directly or indirectly, owns 25% or more of the equity interests of the Legal Entity purchasing real property in the Covered Transaction.”^[19] “Residential real estate” is not defined in the GTOs and is not defined in the general definitions used by FinCEN.^[20]

Southwest States GTO

Earlier this year, March 14 to be exact, FinCEN issued a GTO applicable only in certain counties in California, Arizona, and Texas along the United States’ southwest border with Mexico (“SW Border GTO”).^[21] Under this GTO, any money services business^[22] handling a transaction either initiated or completed in one of those identified counties that was for more than $200, up to a cap of $10,000, was obligated to file a Currency Transaction Report. The legitimacy of this effort, adopted “in furtherance of Treasury’s efforts to combat illicit finance by drug cartels and other illicit actors along the southwest border of United States,”^[23] has been challenged and a preliminary injunction issued against its enforcement, which relief has been stayed pending appeal.^[24] By its own terms, that GTO expired on September 9, 2025. Most recently, a new GTO was issued that both expanded its geographic applications while raising the lower threshold for reports from $200 to more than $1,000.^[25]

As to our theme of developments in the law of beneficial ownership reporting, if you drill down into a Currency Transaction Report, you will find that in certain instances, where either the originator or the recipient of a money transfer is a business organization, certain information as to its beneficial ownership is required.^[26]

Non-Financed Residential Real Estate Reporting

On August 29, 2024, FinCEN published its Anti–Money Laundering Regulations for Residential Real Estate Transfers.^[27] These rules, hereinafter the “RRE Rules,” mandate the reporting—on a streamlined version of a Suspicious Activity Report (“SAR”), referred to as a “Real Estate Report”—of a wide range of information by persons associated with real estate transactions involving non-financed residential real estate closings and settlements.^[28]

These rules impose recordkeeping and reporting duties with respect to certain transfers of real property (or interests therein) to a transferee entity or transferee trust (“reportable transfer”). A reportable transfer is a transfer having three characteristics: (1) one or more of the parties is not an individual, (2) the real property is U.S. residential real estate, and (3) the real estate transfer does not involve the extension of credit to all transferees.^[29]

The person responsible for collecting the information (“reporting person”) is the person engaged within the United States as a business in the provision of real estate closing and settlement services; under the cascading list of who will be a reporting person, in most cases the reporting person will be a settlement agent or title insurance person, but it is possible that a lawyer will have the duties of a reporting person.^[30] The persons who fall within the set of potential reporting persons for a particular transaction may determine among themselves who will—and, by exclusion, who will not—discharge the reporting obligations.^[31]

Effective Date

While the initial effective date of the new RRE Rules was to have been December 1, 2025,^[32] FinCEN announced on September 30, 2025, a delay in the initial effective date to March 1, 2026,^[33] and released a mock-up of the revised Real Estate Report Form.^[34]

The Rule’s Contents and Exemptions

The scope of the RRE Rules can be drawn from the headings to the primary subdivisions of the regulation, namely, “General”;^[35] “Reportable transfer”;^[36] “Determination of reporting person”;^[37] “Information regarding the reporting person”;^[38] “Information regarding the transferee”;^[39] “Information regarding the transferor”;^[40] “Information concerning the residential real property”;^[41] “Information concerning payments”;^[42] “Information concerning hard money, private, and other similar loans”;^[43] “Reasonable reliance”;^[44] “Filing procedures”;^[45] “Retention of records”;^[46] “Exemptions”;^[47] and “Definitions.”^[48]

While this review of the RRE Rules generally follows largely in the order set forth in the regulation, it is worthwhile to begin with some significant exceptions. Again, the scope of the reporting regime is a transfer of real property or interests therein to a business organization or a trust without typical bank financing, a category that reaches huge numbers of everyday transfers accomplished for estate planning and similar objectives. Fortunately, most (or at least many) of those transactions will not be subject to these reporting rules, which exclude the following from the definition of “reportable transfer”:^[49] (i) the grant/transfer/revocation of an easement;^[50] (ii) a transfer consequent to death;^[51] (iii) a transfer incident to divorce or dissolution of a marriage or civil union;^[52] (iv) a transfer to a bankruptcy estate;^[53] (v) any other transfer supervised by a court in the United States;^[54] (vi) a transfer without consideration by an individual either alone or with their spouse to a trust for which that individual, the spouse, or both of them are the settlers/grantors;^[55] (vii) transfers to an I.R.C. § 1031 qualified intermediary;^[56] and (viii) any transfer in which no reporting person is involved.^[57] Transfers in which the transferee is an individual are outside the scope of a reportable transfer even if it is a non-financed cash transaction.^[58]

General

It is perhaps most helpful to review the entirety of this provision in order to understand the structure of the RRE Rules, which provide as follows:

A reportable transfer as defined in paragraph (b) of this section shall be reported to FinCEN by the reporting person identified in paragraph (c) of this section. The report shall include the information described in paragraphs (d) through (i) of this section. The reporting person may reasonably rely on information collected from others under the conditions described in paragraph (j). The report required by this section shall be filed in the form and manner, and at the time, specified in paragraph (k) of this section. Records shall be retained as specified in paragraph (l) of this section. Reports required under this section and any other information that would reveal that a reportable transfer has been reported are not confidential as specified in paragraph (m) of this section. Terms not defined in this section are defined in 31 CFR 1010.100.^[59]

Reportable Transfer

A reportable transfer subject to the RRE (save as exempted, as outlined above)^[60] involves a non-financed^[61] transfer to either a transferee entity^[62] or a transferee trust of residential real property:

(i) Real property located in the United States containing a structure designed principally for occupancy by one to four families;

(ii) Land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families;

(iii) A unit designed principally for occupancy by one to four families within a structure on land located in the United States; or

(iv) Shares in a cooperative housing corporation for which the underlying property is located in the United States.^[63]

Why the RRE Rules encompass a plan to build four townhouses on a particular parcel but exclude from their scope one intended to have five or more is not entirely clear.^[64] However, the fact of the up-to-four cap will serve to exempt many transfers from the RRE Rules’ scope and from the ability to identify the activities that nefarious actors will want to exploit—all that must be done to obscure a nefarious intention is to build five or more units, and the RRE Rules will not apply.^[65]

Determination of Reporting Person

The “reporting person” is the person charged to effect the filing of the RRE Report with FinCEN and will be a “person engaged within the United States as a business in the provision of real estate closing and settlement services.”^[66] It bears noting that the actual parties to the transaction at issue will almost never be the reporting person because they are not participants in the “real estate closing and settlement services” industry. From there, the RRE regulations provide a cascade of potential reporting persons to aid in assessing who is the reporting person:

(i) The person listed as the closing or settlement agent on the closing or settlement statement for the transfer;

(ii) If no person described in paragraph (c)(1)(i) of this section is involved in the transfer, then the person that prepares the closing or settlement statement for the transfer;

(iii) If no person described in paragraph (c)(1)(i) or (ii) of this section is involved in the transfer, then the person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property;

(iv) If no person described in paragraphs (c)(1)(i) through (iii) of this section is involved in the transfer, then the person that underwrites an owner’s title insurance policy for the transferee with respect to the transferred residential real property, such as a title insurance company;

(v) If no person described in paragraphs (c)(1)(i) through (iv) of this section is involved in the transfer, then the person that disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the residential real property transfer;

(vi) If no person described in paragraphs (c)(1)(i) through (v) of this section is involved in the transfer, then the person that provides an evaluation of the status of the title; or

(vii) If no person described in paragraphs (c)(1)(i) through (vi) of this section is involved in the transfer, then the person that prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.^[67]

It is noteworthy that realtors / real estate agents are not within the cascade of potential reporting persons.^[68] Issues specific to attorneys as reporting persons are discussed below.^[69] If an individual falls within the scope of the “reporting person” definition because that individual is an employee or agent of or a partner in a partnership, then the employer, principal, or partnership is the reporting person.^[70] Applying this rule, if that employer/principal is a financial institution that has in place an anti–money-laundering (“AML”) program, then the employee/agent is not a reporting person, and that role falls to someone else in the cascade.^[71]

The persons who are within the set of potential reporting persons for a particular transaction^[72] may enter into a transaction-specific written agreement by which one of their number is designated as the reporting person,^[73] with the RRE regulations spelling out the minimum requirements of that agreement.^[74] All parties to a designation agreement are obligated to maintain a copy of thereof.^[75]

Information Regarding the Reporting Person

With regard to the reporting person, who may be an individual or a business entity, the RRE Report requires the person’s full legal name, the category of the definition of “reporting person” into which they fall, and the reporting person’s principal place of business address.^[76]

Information Regarding the Transferee

The reporting requirements as to the transferee(s) are rather involved, and it is at this point in the RRE Rules that we first encounter the manner in which they require beneficial ownership information. Keep in mind, though, that the RRE Rules impact only transfers to an entity or a trust.^[77]

FinCEN, as set forth in the release accompanying the RRE Rules, anticipates that partnerships and other organizational forms may be transferee entities.^[78] The path by which this is achieved in the RRE Rules is less than direct. The definition of “transferee entity” provides in relevant part that “‘transferee entity’ means any person^[79] other than a transferee trust or an individual.”^[80] In turn, “person” is defined as “[a]n individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.”^[81] Absent an exemption because of either the nature of the transaction^[82] or the characteristics of the transferee entity,^[83] the RRE Rules reach any transfer to a transferee entity or to a transferee trust—meaning that the RRE Rules will apply, and an RRE Report will need to be filed.

It will be necessary to report as to each transferee entity all of the following:^[84] its full legal name; any assumed (d/b/a) names; the entity’s principal place of business street address;^[85] and its unique identifying number, typically an IRS TIN with alternatives if the transferee does not have one.^[86] Then, as to that transferee, the following must be reported as to each of its beneficial owners:^[87] full legal name;^[88] date of birth;^[89] current residential street address;^[90] citizenship;^[91] and a unique identifying number, typically an IRS TIN with alternatives if that beneficial owner does not have an IRS TIN.^[92] Then, as to each person signing the documents on behalf of a transferee (“signing individual”),^[93] there must be submitted^[94] that person’s full legal name; date of birth; current residential street address; unique identifying number, typically an IRS TIN with alternatives if the signing person does not have one;^[95] and a description of the capacity in which they are acting.^[96]

But wait—there’s more if the transferee is a trust and if the trustee is a legal entity.^[97] As to the transferee trust, there must be set forth its legal name, such as the full title of the agreement establishing the transferee trust;^[98] the date the trust instrument was executed;^[99] the trust’s IRS TIN, with alternatives if the transferee does not have one;^[100] and whether the trust is revocable.^[101] Then, if the trustee of the transferee trust is a legal entity, the RRE Rules require the disclosure of^[102] its full legal name; any assumed (d/b/a) names; the entity’s principal place of business street address;^[103] and its unique identifying number, typically an IRS TIN with alternatives if the legal entity trustee does not have one.^[104]

As for trustees of transferee trusts that are individuals: “For purposes of this section, an individual trustee of the transferee trust is considered to be a beneficial owner of the trust. As such, information on individual trustees must be reported in accordance with the requirements set forth in paragraph (e)(2)(iii) of this section.”^[105] Specifically, for each beneficial owner^[106] of the transferee trust, there must be set forth^[107] full legal name; date of birth; current residential street address; citizenship; a unique identifying number, typically an IRS TIN with alternatives if the transferee does not have one;^[108] and “the category of beneficial owner, as determined in paragraph (j)(1)(ii) of this section.”^[109]

Information Regarding the Transferor

The RRE Report will provide a variety of information as to transferor of the property, the nature of the disclosure depending upon whether the transferor is an individual, a business entity, or a trust.

For an individual transferor, the RRE Report will set forth the person’s full name;^[110] date of birth;^[111] current residential address;^[112] and his or her IRS TIN, with alternatives if the transferor does not have one.^[113]For a transferor that is a business entity, the RRE Report will set forth the entity’s legal name;^[114] any trade (d/b/a) names;^[115] current principal place of business address if in the U.S., with alternative treatment if it is not;^[116] and its IRS TIN, with alternatives if the transferee does not have one.^[117]

For a transferor that is a trust, the RRE Report will set forth the trust’s “full legal name, such as the full title of the agreement establishing the trust,”^[118] the date of the trust instrument,^[119] and its IRS TIN, with alternatives if the transferee does not have one.^[120] Then, as to each individual who is a trustee of the transferor trust, there will be set forth the individual’s name,^[121] current residential address,^[122] and his or her IRS TIN, with alternatives if he or she does not have one.^[123] Last, if the trustee of the transferor trust is a business entity, the RRE Report will set forth the legal name of the business entity,^[124] any trade (d/b/a) names,^[125] its complete address,^[126] and its IRS TIN, with alternatives if the transferor does not have one.^[127]

Information Concerning the Residential Real Property

As to the residential real property being conveyed,^[128] the reporting person on the RRE Report must set forth its street address, if any; a “legal description, such as the section, lot, and block”; and the date of closing.^[129]

Information Concerning Payments

The reporting person will, on the RRE Report, submit information as to payments, namely, the payment amount;^[130] the manner in which it was made;^[131] if the payment was made from an account at a financial institution, the name thereof;^[132] and the “name of the payor on any wire, check, or other type of payment if the payor is not the transferee entity or transferee trust.”^[133]

Then, with regard to any payment not “disbursed from an escrow or trust account held by a transferee entity or transferee trust, that is made by or on behalf of the transferee entity or transferee trust regarding a reportable transfer,” the reporting person will submit information regarding:

• the amount of the payment;
• the method by which the payment was made;
• if the payment was paid from an account held at a financial institution, the name of the financial institution and the account number; and
• the name of the payor on any wire, check, or other type of payment if the payor is not the transferee entity or transferee trust.^[134]

Further, the reporting person shall report “the total consideration paid or to be paid by the transferee entity or transferee trust regarding the reportable transfer, as well as the total consideration paid by or to be paid by all transferees regarding the reportable transfer.”^[135]

Note that there is excluded from this reporting obligation those payments “disbursed from an escrow or trust account held by a transferee entity or transferee trust, that is made by or on behalf of the transferee entity or transferee trust regarding a reportable transfer.”^[136]

Information Concerning Hard Money, Private, and Other Similar Loans

The reporting person, on the RRE Report, will report “whether the reportable transfer involved credit extended by a person that is not a financial institution with an obligation to maintain an anti–money laundering program and an obligation to report suspicious transactions under this chapter.”^[137]

Reasonable Reliance

In a marked departure from the CTA and its rejection of a reliance standard as to the certification of the beneficial ownership of a reporting company,^[138] under the RRE Rules a reporting person may rely on information provided by others “absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person.”^[139] As to information reported regarding the beneficial ownership of a transferee entity^[140] or a transferee trust,^[141] the reporting person may rely upon a written certification of accuracy of the information provided, again conditioned upon the absence of knowledge to the contrary.^[142]

Filing Procedures

All real estate reports are filed electronically with FinCEN^[143] by the later of the last day of the month following the month in which the date of the closing occurred or thirty days after the date of the closing.^[144] Note that “date of closing” is a defined term.^[145]

Retention of Records

The RRE Rules contain a pair of express record retentions obligations. First, the reporting person is obligated to retain copies of all certifications received from a “transferee or a person representing the transferee in the reportable transfer” as to the information that person certified as accurate.^[146] In addition, every party thereto must maintain a copy of each designation agreement.^[147] Neither provision provides a time period for which the records must be retained. While not express in the text of the regulations, according to the accompanying release, the time requirement is five years.^[148]

Exemptions

This subsection of the RRE Rules sets forth not exceptions to the reporting obligations but rather exemptions from other laws.

The first exemption is as follows:

Reporting persons, and any director, officer, employee, or agent of such persons, and Federal, State, local, or Tribal government authorities, are exempt from the confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the disclosure to any person involved in a suspicious transaction that the transaction has been reported or any information that otherwise would reveal that the transaction has been reported.^[149]

The second exemption states that having an obligation to file one or more RRE Reports does not create an obligation on the reporting person to put in place an AML program.^[150]

Definitions

Last,^[151] the RRE Rules set forth a series of defined terms—some incidental, such as “date of closing,”^[152] and some of crucial importance, especially the definition of “beneficial owner.”^[153] The other defined terms are “closing or settlement agent,”^[154] “closing or settlement statement,”^[155] “non-financed transfer,”^[156] “ownership interest,”^[157] “recordation office,”^[158] “signing individual,”^[159] “statutory trust,”^[160] “transferee entity,”^[161] and “transferee trust.”^[162]

Before returning to the definition of “beneficial owner,” the defined term “closing or settlement agent” is utilized in the definition of “reporting person,”^[163] as is the defined term “closing or settlement statement.”^[164] The defined term “date of closing” is used in a variety of places, including to ascertain who are the “beneficial owners,”^[165] to describe the transaction,^[166] and to determine when the RRE Report is due.^[167] The defined term “non-financed transfer” is used in the definition of what is a reportable transfer.^[168] The defined term “ownership interest” is utilized in the definition of what is a reportable transfer^[169] and with respect to determining what is the “date of closing.”^[170] The term “recordation office” is used in the cascade that determines who is the reporting person.^[171] The term “signing individual” is used in the listings of information to be set forth in the RRE Report.^[172] The defined term “statutory trust” is utilized only in the definition of a “transferee trust”^[173] and to exclude statutory trusts from that definition.^[174] The definition of “transferee entity” operates from an exclusionary perspective. First, it encompasses any “person other than a transferee trust or an individual”;^[175] then it excludes a wide category of business organizations such that they will not be “transferee entities”—that is, transfers to them will not fall within the scope of the RRE Rules.^[176] From there, the defined term is utilized in the definition of a reportable transfer,^[177] the required contents of a designation agreement,^[178] and the required contents of the RRE Report.^[179]

Last, before returning to the definition of who is a beneficial owner, the defined term “transferee trust” provides:

(i) Except as set forth in paragraph (n)(11)(ii) of this section, the term “transferee trust” means any legal arrangement created when a person (generally known as a grantor or settlor) places assets under the control of a trustee for the benefit of one or more persons (each generally known as a beneficiary) or for a specified purpose, as well as any legal arrangement similar in structure or function to the above, whether formed under the laws of the United States or a foreign jurisdiction. A trust is deemed to be a transferee trust regardless of whether residential real property is titled in the name of the trust itself or in the name of the trustee in the trustee’s capacity as the trustee of the trust.

(ii) A transferee trust does not include:

(A) A trust that is a securities reporting issuer defined in 31 CFR 1010.380(c)(2)(i);

(B) A trust in which the trustee is a securities reporting issuer defined in 31 CFR 1010.380(c)(2)(i);

(C) A statutory trust; or

(D) An entity wholly owned by a trust described in paragraphs (n)(11)(ii)(A) through (C) of this section.^[180]

While at first blush it may appear that transfers to a statutory trust are exempt from the RRE Rules, that is not correct; a statutory trust is still a transferee entity.^[181] The net effect of this provision is to provide that the disclosure made with respect to a statutory trust (as defined) involved in a particular transaction, whether as a transferor or as a transferee, will be that appropriate for an entity rather than that appropriate for a trust. That said, transactions involving a Delaware statutory trust and a business/statutory trust organized under statutes not patterned on the Uniform Act will be treated as transferor or transferee trusts.

The definition of “beneficial owners” is divided into two subdivisions: (1) “Beneficial owner of transferee entities”^[182] and (2) “Beneficial owners of transferee trusts.”^[183] For both categories, the determination of who are the beneficial owners is made as of the “date of closing.”^[184]

Beneficial owners of transferee entities

The beneficial owners of a transferee entity are those persons who are beneficial owners under the CTA’s Reporting Rules.^[185] This brings us back to the “substantial control” and 25 percent ownership tests set forth therein^[186]—and a significant fly in the ointment. The CTA’s Reporting Rules were significantly modified by the IFR,^[187] including the amendment of the definition of who is a beneficial owner. As to a beneficial owner who is “established as a non-profit corporation or similar entity,” the CTA Reporting Rules’ definition of “substantial control” will be applied to determine who are its beneficial owners.^[188] Under the Reporting Rules as amended by the IFR, subsection 380(d)(4) was added, providing thus:

Exemptions.

(i) Reporting companies are exempt from the requirement in 31 U.S.C. 5336 and this section to report the beneficial ownership information of any United States persons^[189] who are beneficial owners.

(ii) United States persons are exempt from the requirements in 31 U.S.C. 5336 and this section to provide beneficial ownership information with respect to any reporting company for which they are a beneficial owner.^[190]

The incorporation by reference of the CTA Reporting Rules’ definition of who is a beneficial owner into the RRE Rules long predates the addition of this exemption, but the simple fact is that it is there; and while it could be asserted that the exemption extends only so far as Beneficial Ownership Information Reports under the CTA, the chain is as follows: the RRE Rules say that a beneficial owner is as specified in 380(d), and 380(d) says U.S. persons are not part of the set otherwise defined in 380(d). This entire issue could have been avoided if the addition of the 380(d)(4) exemption had been qualified with “except as incorporated by reference in the RRE Rules,” but this did not happen; and in the Loper Bright era, “clearly that is not what we meant” is likely going to carry little, if any, weight.^[191]

Beneficial owners of transferee trusts

Turning to the determination of the beneficial owners of a transferee trust, they include (i) the trustee(s) or (ii) any individual who is not a trustee “with the authority to dispose of transferee trust assets.”^[192] Similar to the rule employed in the CTA Reporting Rules, a person who is the sole income beneficiary or who has the right to withdraw substantially all of the trust corpus is a beneficial owner,^[193] as is a trust settlor who has the capacity to either withdraw the corpus or terminate the trust.^[194] If there is a business entity that is a trustee, a settlor, or otherwise a beneficial owner of a transferee trust, unless exempt,^[195] “beneficial ownership of any such legal entity is determined under 31 CFR 1010.380(d), utilizing the criteria for beneficial owners of a reporting company.”^[196] This bring us back to the issue identified above regarding 380(d)(4). There is also a provision that deals with stacked trusts.^[197]

Setting aside that (significant) point, the sometimes baffling issues that arise as to the application of the CTA Reporting Rules’ definition of who exercises substantial control and who owns 25 percent or more of an entity will continue to plague us, but only more so. Under the CTA and the Reporting Rules, a general partnership (a set that includes a limited liability partnership) was not a “reporting company” in that general partnerships do not come into existence consequent to a secretary of state filing.^[198] However, a general partnership does fall within the class of a transferee entity under the RRE Rules,^[199] and for that reason the RRE Rules and those seeking to apply them will in time need to address inadvertent partnerships^[200] that lack a required TIN for recordation in the RRE Report. Further, there are partnerships either that have either elected out of subchapter K^[201] or that are qualified joint ventures^[202] that are not partnerships for tax purposes and that will for that reason not have a TIN. These and other circumstances will add complexity to the reality of creating the RRE Report for a particular transaction.

Other Issues Under the RRE Rules

Penalties

Noticeably absent from the RRE Rules is a penalty provision. This is not because there are no penalties for noncompliance but because those rules exist elsewhere.^[203]

Attorneys as Reporting Persons

As noted above, a lawyer may become a reporting person (and thus bear reporting obligations) if the lawyer provides any of closing and settlement services listed in the RRE Rules’ reporting person cascade.^[204] Unless the parties agree otherwise^[205] or the lawyer is listed as the closing or settlement agent on the closing or settlement statement, the lawyer will be the reporting person;^[206] the lawyer may fall within the cascade by preparing the closing or settlement statement,^[207] recording the deed,^[208] underwriting title insurance,^[209] disbursing funds (particularly from the lawyer’s trust account),^[210] providing a title opinion,^[211] or preparing the deed or other document of transfer.^[212] Obviously, if the lawyer can avoid performing any of the services listed in the cascade, the lawyer may avoid the responsibilities of the RRE reporting person. Thus, it would appear that a lawyer who is involved in structuring a transaction but does not engage in any of the specific actions listed in the cascade such as drafting or filing deeds, rendering opinions on title, or disbursing funds may be entirely outside of the cascade. Even in those circumstances in which an attorney is in the cascade of persons who may be, as to that transaction, a reporting person, that role and its attendant obligations may be avoided by having another person in the cascade perform that function pursuant to a designation agreement.

The release setting forth the RRE Rules go on at some length to argue that a lawyer that fits within one of the tranches of the reporting cascade would not be ethically constrained from providing the information required as a reporting person.^[213] Interestingly, however, this is unlike the case of the CTA under which FinCEN, perhaps in pursuance of the desire to comply with proposed conduct encouraged by the Financial Action Task Force (“FATF”),^[214] imposed greater obligations on lawyers to report themselves as company applicants.^[215] Thus, lawyers may be able to judiciously avoid becoming reporting persons more easily than they could avoid being company applicants. This is important because the burdens on reporting persons to parse the beneficial ownership in an RRE transaction are greater than the reporting burden imposed on attorneys as company applicants under the CTA; and under the RRE requirements, more types of organizations, such as general partnerships that are not created by filings with the secretary of state, are covered by the RRE.

Although a lawyer may not be a reporting person under the RRE Rules and may not be subject to the requirements of the CTA, a vestigial ethical rule adopted in 2023, which was intended to reinforce the anti–money-laundering regime of which the CTA was the capstone, may create some concern for lawyers even if they have no obligations under the RRE Rules or CTA. Even before the change that took place in 2023, lawyers had an obligation not to knowingly assist a client in the perpetration of a crime or fraud.^[216] Resolution 100 was approved by the ABA House of Delegates after a contentious debate created (or confirmed) a lawyer’s duty to conduct client due diligence beyond that necessary in order to lawfully accomplish the client’s objectives.^[217] The effect of these changes has yet to be determined; they have been the subject of one formal opinion of the ABA Standing Committee on Ethics and Professional Liability.^[218] Whether this rule will impose additional burdens on attorneys even where the CTA and RRE Rules do not remains to be seen.

Application of the RRE Rules

Following are a number of scenarios drafted to explore the application of the RRE Rules to particular fact patterns. They are based upon certain assumptions and the available published guidance and are intended to be nothing more than illustrative.^[219]

1. Wife and Husband own Blackacre, on which is located a lake house. Wife (an ob-gyn) and Husband (a CPA) form an LLC by filing articles of organization using the secretary of state’s online form. Husband then finds online a form of a quitclaim deed; they copy to it the legal description of Blackacre and after execution file it with the appropriate county land records.

The RRE Rules do not apply.

While Blackacre is residential real property,^[220] a transfer to an LLC is not an exempt transaction,^[221] and the transaction was not financed,^[222] however, no reporting person was involved in the transaction,^[223] so it is therefore exempt.^[224]

2. Amy and Michelle, sisters, inherited Whiteacre from their mother; they hold title as joint tenants. Whiteacre is vacant but is zoned for single-family dwellings. At the recommendation of Attorney, they are putting Whiteacre in trust for the benefit of their respective heirs. In connection with creating that trust, Attorney has prepared a quitclaim deed of Whiteacre into said trust. Title insurance is being issued in the names of the trustees in their capacities as trustees.

The RRE Rules may apply.

The question turns on whether Whiteacre is intended to be residential real property. If at the time of transfer it can be attested that there is no intention to erect a residence on the property, then the property is not residential real property.^[225] The person who would be the reporting person, be that the title insurance company or the attorney, may rely upon the representation of no intent to develop the property.^[226]

3. Amy inherited Whiteacre from her mother. Whiteacre is vacant but is zoned for single-family dwellings. Amy intends to gift the property to her son Aiden so that he can build thereon a single-family dwelling. Attorney has prepared a quitclaim deed for Whiteacre to Aiden, and he is getting title insurance thereon so that he can proceed to get a construction loan.

The RRE Rules do not apply.

There is no financing in the transaction,^[227] Whiteacre is residential real property,^[228] and both Attorney and the title insurer are in the cascade of reporting persons.^[229] However, there was no transfer to a transferee entity or to a transferee trust,^[230] so it is not a reportable transaction.^[231]

4. Wife and Husband own Blackacre, on which is located a lake house. In consultation with Attorney, they transfer title to an LLC in which they are the only members. Attorney prepared both a deed and the LLC’s articles of organization and operating agreement.

The RRE Rules apply.

Blackacre is residential real property,^[232] a transfer by spouses to an LLC is not an exempt transaction,^[233] LLC is a transferee entity,^[234] the transaction was not financed,^[235] and Attorney, having prepared the deed (formation of the LLC is not a relevant consideration), is a reporting person.^[236]

5. Wife and Husband own Blackacre, on which is located a lake house. Because Attorney does not understand the effect of a trust, Attorney recommended to them that for “asset protection” they should put the property in a trust. Attorney has prepared a trust instrument and a quitclaim deed. The existing title insurance policy will receive a rider to the effect that it includes the title as in the trust.

The RRE Rules do not apply.

While Blackacre is residential real property,^[237] the transaction was not financed,^[238] and both Attorney and the title insurance company are each a reporting person involved in the transaction,^[239] a transfer of title from married individuals to a trust for which they are the settlors is exempt from the RRE Rules.^[240]

6. Tony and Shawn have decided to enter the residential real estate development industry and will start by erecting three townhouses on property they will acquire. They have identified Whiteacre as a property they would like to acquire and develop. They have organized a Delaware statutory trust to take title to Whiteacre; that statutory trust does not have the capacity to create series. The initial acquisition will be funded with their respective cash contributions to the statutory trust. The deed for the property will be prepared by the title insurance company and reviewed by the attorney whom Tony and Shawn retained to advise as to choice of entity and who drafted the governing instrument for the statutory trust.

The RRE Rules apply.

The development of three townhouses is residential real property,^[241] the property is being acquired in a non-financed transaction,^[242] and the title insurer will be the reporting person.^[243] Further, because the statutory trust is organized under Delaware law, and as the Delaware Statutory Trust Act is not an enactment of the Uniform Statutory Trust Act,^[244] it is not exempt from classification as a transferee trust,^[245] and the disclosure appropriate for a transferee trust^[246] (as contrasted with a transferee entity)^[247] will be made.

7. Larry and Bob have decided to get involved in the residential real estate development industry. They have identified Whiteacre as a property they would like to acquire and develop. They have organized a statutory trust with series in Kentucky to take title to Whiteacre. The initial acquisition will be funded with their respective cash contributions to the statutory trust. The deed for the property will be prepared by the title insurance company and reviewed by the attorney whom Bob and Larry retained to advise as to choice of entity and who drafted the governing instrument for the statutory trust.

The RRE Rules might apply.

Initially, the nature of the development needs to be determined. The plans that have been prepared are for several (four or five) townhouses on Whiteacre. If it is to be the lower number, then we have residential real property; but if it is the higher number (and that is the number on the requested building permit), then it is not.^[248] However, the plans have not been approved and the permit has not been issued, and both Larry and Bob acknowledge that fitting five units into the property is a slight stretch.

The title insurance company has advised that if Larry and Bob cannot assure them that there will be more than four units^[249] they will treat the transaction as involving residential real estate. As the Kentucky Uniform Statutory Trust Act^[250] is patterned on the Uniform Act, the RRE Report will treat the statutory trust as a transferee entity.

8. Alan and Pia have decided to jointly purchase real estate for investment. They have identified an existing property: it is a small strip mall in which the tenants are a laundromat, a “Chinese restaurant,” a tanning spa, and a marijuana dispensary. They have organized an LLC that will take title to the property. Alan is taking out a loan secured by a mortgage on his primary residence in order to have on hand the funds necessary to close on the strip mall property; Pia is paying cash she has on hand. The title insurance company is seeing to the necessary deed.

The RRE Rules do not apply.

The property is not residential real property,^[251] so there is no reportable transaction.

9. Pia and Alan, after the success of their first investment, have identified another piece of property, a similar strip mall featuring as tenants a bicycle shop, a package liquor store, and a franchise sandwich shop. Unlike the first property, the building has two stories, and the second story features four apartments, two of which are subject to long-term leases and two of which are kept for short-term rentals. They have organized an LLC that will take title to the property. Again, Alan is taking out a loan secured by a mortgage on his primary residence in order to have on hand the funds necessary to close on the strip mall property; Pia is paying cash she has on hand.

The RRE Rules apply.

The property is residential real property^[252] in that it includes four housing units.^[253] The fact that two of them are intended to be employed as short-term rentals does not detract from the treatment as residential real property. The acquisition is not financed as Alan’s loan against his primary residence is not an extension of credit “to all transferees”^[254] and is not “secured by the transferred real property.”^[255] The title insurance company is a reporting person,^[256] and the LLC will be a transferee entity.

Litigation and Other Challenges to the RRE Rules

There is, as of this writing, pending in Congress both Senate Joint Resolution 15^[257] and House Joint Resolution 55,^[258] which, if passed, would render the RRE Rules of “no force or effect.” As of this writing there has been no action on either since introduction.

In addition, as of this writing, there are pending several lawsuits challenging the legitimacy of the RRE Rules, which, if successful, could render the reporting system either moot or require its significant modification.^[259] With the delay of the initial effective date from December 1, 2025, to March 1, 2026, there is reduced pressure on the courts to issue their opinions, but the reality of the pressures on the legal and business community to comply is not significantly reduced.

The Relationship of the Real Estate GTOs and the RRE Rules

It would seem, although there does not seem to have been an explicit statement to that effect, that FinCEN will cease the GTO program once the RRE Rules are in effect, writing in the press release accompanying the effective October 10, 2025, GTO that “[i]n light of the RRE Rule’s reporting requirements, the residential real estate GTOs will expire on February 28, 2026, with the GTOs continuing to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises.”^[260]

Below is a comparison of the GTOs issued to date against the RRE Rules:

Stay Tuned

When we next pick up this story we will review the impact of the IFR upon the CTA and the Reporting Rules, including a discussion as to why the IFR may be illegitimate.^[273]

1. See, e.g., Press Release, U.S. Dep’t of the Treasury, Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies (Mar. 2, 2025) (“The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”). ↑

2. See Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension, 90 Fed. Reg. 13688 (Mar. 26, 2025) [hereinafter “IFR”]. ↑

3. See 31 U.S.C. § 5336. For a review of the CTA and the Reporting Rules (pre-IFR) generally, see 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies, at ch. 4A (Nov. 2024). ↑

4. The Reporting Rules appear at 31 C.F.R. § 1010.380(a) et seq. The “final” pre-IFR Beneficial Ownership Information Report (“BOIR”) regulations were released in Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022). The final rules followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 69920 (Dec. 8, 2021) (notice of proposed rulemaking (“NPRM”)), which itself followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17557 (Apr. 5, 2021) (advance notice of proposed rulemaking (“ANPR”)). Those “final” regulations detail certain due dates, amended by Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66730 (Sept. 28, 2023); supplemented with regard to the use of FinCEN identifiers by the release of Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities, 88 Fed. Reg. 76995 (Nov. 8, 2023); and expanded with regard to the exemption for public utilities (31 C.F.R. § 1010.380(c)(2)(xvi)) in Update to the Public Utility Exemption Under the Beneficial Ownership Information Reporting Rule, 89 Fed. Reg. 83782 (Oct. 18, 2024)—collectively, the “Reporting Rules.” To be clear, when the Reporting Rules are herein referenced, we refer to the regulations in effect prior to the IFR. ↑

5. The current state of the Corporate Transparency Act and the Reporting Rules as impacted by the IFR are reviewed in the second installment of this three-part article. ↑

6. “United States person” is a defined term in the Reporting Rules, adopted by a cross-reference to I.R.C. § 7701(a)(30):

   United States person. The term “United States person” means—(A) a citizen or resident of the United States, (B) a domestic partnership, (C) a domestic corporation, (D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and (E) any trust if—(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or more United States persons have the authority to control all substantial decisions of the trust.

   31 C.F.R. § 1010.380(f)(10). ↑

7. See the second installment of this article. ↑

8. Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, How FinCEN Stole Christmas: The Corporate Transparency Act, Year 1, Bus. L. Today (Jan. 13, 2025). ↑

9. Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, The Corporate Transparency Act Is Still on Pause, but Less So, Bus. L. Today (Feb. 6, 2025). ↑

10. Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, The Corporate Transparency Act: Are Rumors of Its Death Exaggerated?, Bus. L. Today (Mar. 17, 2025). ↑

11. The following is adapted from 1 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 4A:6 (Dec. 2025). ↑

12. Pub. L. No. 115-44 (Aug. 2, 2017), as amended by Pub. L. No. 117-81 (Dec. 27, 2021). ↑

13. Id. § 243. ↑

14. See Currency Transaction Report form (aka “FinCEN Form 112” or “FinCEN CTR (Form 112) Reporting of Certain Currency Transactions for Sole Proprietorships and Legal Entities Operating Under a ‘Doing Business As’ (‘DBA’) Name”). See also Currency Transaction Reporting (Feb. 2021); Notice to Customers: A CTR Reference Guide, Fin. Crimes Enf’t Network (last visited Nov. 11, 2025). Note that a Currency Transaction Report is different from a FinCEN Suspicious Activity Report (Form 111). ↑

15. A cumulative table listing all of the non-financed residential real estate GTOs issued through April 2025 is set forth in Ribstein, Keatinge & Rutledge, supra note 11, § 4A:6. ↑

16. Anti–Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 70258 (Aug. 29, 2024); see infra notes 32–34 and accompanying text. ↑

17. Press Release, Fin. Crimes Enf’t Network, FinCEN Announces Postponement of Residential Real Estate Reporting Until March 1, 2026 (Sept. 30, 2025). ↑

18. See Fin. Crimes Enf’t Network, Geographic Targeting Order § II.A.2.iv (effective Oct. 10, 2025). ↑

19. See id. § III.A.1.i–ii. ↑

20. See 31 C.F.R. § 1010.100. ↑

21. See Issuance of a Geographic Targeting Order Imposing Additional Recordkeeping and Reporting Requirements on Certain Money Services Businesses Along the Southwest Border, 90 Fed. Reg. 12106 (Mar. 14, 2025); see also Press Release, Fin. Crimes Enf’t Network, FinCEN Issues Southwest Border Geographic Targeting Order (Mar. 11, 2025); Tara Simpson, FinCEN’s Southwest Border Geographic Targeting Order (GTO): What Credit Unions Need to Know, America’s Credit Unions (Mar. 25, 2025). This GTO expired on September 9, 2025. See Issuance of a Geographic Targeting Order Imposing Additional Recordkeeping and Reporting Requirements on Certain Money Services Businesses Along the Southwest Border, 90 Fed. Reg. at 12107; see also Fin. Crimes Enf’t Network, Frequently Asked Questions (FAQs), at FAQ 21 (Mar. 24, 2025, updated Apr. 16, 2025). ↑

22. Defined at 31 C.F.R. § 1010.100(ff). This regulation has seven subsections that reference various formats of a “money services business.” Those subject to these rules will typically be identified at 31 C.F.R. § 1010.00(ff)(5). ↑

23. See Issuance of a Geographic Targeting Order Imposing Additional Recordkeeping and Reporting Requirements on Certain Money Services Businesses Along the Southwest Border, 90 Fed. Reg. at 12107; see also Fin. Crimes Enf’t Network, Frequently Asked Questions (FAQs), at FAQ 2 (Sept. 8, 2025) (“Combatting drug cartels and stopping the flow of deadly drugs into the United States is one of the Administration’s highest priorities.”); FinCEN Releases New Southwest Border Geographic Targeting Order, ABA Banking J. (Sept. 8, 2025). See also FinCEN, Press Release, FinCEN Issues Alert on Cross-Border Funds Transfers Involving Illegal Aliens (Nov. 28, 2025); FinCEN Alert on Cross-Border Funds Transfers Involving Illegal Aliens (Nov. 28, 2025) (citations omitted):

    The U.S. Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN) is issuing this Alert to urge money services businesses (MSBs) to be vigilant in detecting, identifying, and reporting suspicious activity connected to cross-border funds transfers involving illegal aliens, i.e., individuals without legal status in the United States. FinCEN is issuing this Alert as part of the U.S. Department of the Treasury’s effort to prevent the exploitation of the U.S. financial system by illegal aliens seeking to move illicitly obtained funds, including by moving those funds across the border. This Alert is also consistent with Executive Order 14159, Protecting the American People Against Invasion, which notes that illegal aliens “present significant threats to national security and public safety” and highlights the need to “dismantle cross-border human smuggling and trafficking networks.” ↑

24. Those cases are as follows:

    • Novedades y Servicios, Inc. v. Fin. Crimes Enf’t Network, No. 25-CV-886 JLS (DDL), 2025 WL 1167372 (S.D. Cal. Apr. 22, 2025) (temporary restraining order (“TRO”) granted); Novedades y Servicios, Inc. v. Fin. Crimes Enf’t Network, No. 25-CV-886 JLS (DDL), 2025 WL 1501936 (S.D. Cal. May 21, 2025) (preliminary injunction issued); Novedades y Servicios, Inc. v. Fin. Crimes Enf’t Network, No. 25-CV-886 JLS (DDL), 2025 WL 2146861 (S.D. Cal. July 28, 2025) (granting stay of preliminary injunction pending appeal). At the U.S. Court of Appeals for the Ninth Circuit, the appeal is docketed at Case No. 25-4238. The government submitted its merits brief on August 6 (docket item 17), with the plaintiffs’ response brief filed on September 3 (docket item 24). The government filed its reply brief on September 24 (docket item 38). An amicus was filed on September 10 (docket item 29). As of October 10, the docket does not show that oral argument has been scheduled.
    • Valuta Corp. v. FinCEN, No. 3:25-cv-00191 (W.D. Tex. complaint filed May 30, 2025). A motion for a TRO was filed with the complaint (docket item 5). The government filed its response to the motion for a TRO on June 9 (docket item 20), and the plaintiffs replied on June 10, 2025 (docket item 18 (note that the ordering of certain items in the docket is not precisely in chronological order)). On June 24, a TRO was issued on the basis that the SW Border GTO is “arbitrary and capricious” (docket item 31). On July 2, the plaintiffs moved for class certification (docket item 36). Just a day later, on July 3, the plaintiffs filed their combined motion for summary judgment, entry of final judgment under rule 65(a)(2), and a preliminary injunction (docket item 41). On July 11, the government filed its response (docket item 45), and the plaintiffs replied on July 15 (docket item 46). A preliminary injunction was granted on July 22. The government’s notice of appeal was filed on September 22. On September 22, the court ordered the parties to file briefs addressing, in light of the September 8 revision of the SW Border GTO, how it “affect[s] the pending complaint’s viability, the TRO, and the preliminary injunction, and whether the parties’ arguments supporting and opposing the TRO, the preliminary injunction, and the pending summary judgment motion are, in whole or in part, moot” (docket item 64). On September 29, the plaintiffs filed their brief as to the impact of the revised GTO (docket item 65), as did the government that same day (docket item 66). Both sides agreed that the issuance of the revised GTO did not moot the case. A further preliminary injunction was issued on October 6, 2025 (docket item 69). Notices of appeal and cross-appeal to the 11th Circuit have been filed (docket items 63 and 67).
    • Tex. Ass’n of Money Servs. Bus. v. Bondi, No. 5:25-cv-00344-FB (W.D. Tex. May 19, 2025) (complaint filed Apr. 1, 2025). A motion for a TRO was submitted by the plaintiffs on April 9 (docket item 5), with an order scheduling a hearing thereon for April 11 (docket item 6). The government submitted its response in opposition on April 10 (docket item 8), and the plaintiffs responded on April 11 (docket item 11). That day, a TRO was entered (docket item 13). An amended complaint was filed on April 18 (docket item 15), and that day the plaintiffs sought an extension of the TRO (docket item 21) and an application for a temporary injunction (docket item 22). The TRO was extended on April 21 (docket item 26) in anticipation of full briefing and a hearing as to the requested preliminary injunction. A briefing schedule was set on April 28 (docket item 30). That hearing was held on May 12 (docket item 56), and the temporary injunction was issued on May 19 (docket item 59). On April 27, the judge issued an interesting “For what it is worth” notice (docket item 61). That same day, a “show-cause” order was issued against the government with respect to allegations that the government had sought to retaliate against witnesses in the proceeding (docket item 62 (see also docket item 60)). The government responded to that show-cause order on June 6 (docket item 63). The matters with respect to the alleged witness intimidation were transferred on June 6 to the Valuta case discussed above as the witness in question is a party to that suit (docket item 65) on the preliminary injunction and the pending summary judgment motion (docket item 64). That appeal is docketed at the U.S. Court of Appeals for the Fifth Circuit as Case No. 25-50481; the plaintiffs have filed a cross-appeal (docket item 69). In connection therewith, the government moved to hold the proceeding in abeyance (docket item 75). The plaintiffs responded on July 15 (docket item 78), and the government replied on July 21 (docket item 79). On July 22, the court ordered the case be held in abeyance pending its appeal (docket item 80).

    See also Tosin Akintola, Treasury Department Surveillance at the Southern Border Faces Fourth Amendment Challenges, Reason (Oct. 8, 2025). ↑

25. Geographic Targeting Order Imposing Recordkeeping and Reporting Requirements on Certain Money Services Businesses Along the Southwest Border, 90 Fed. Reg. 43557 (Sept. 8, 2025); see also Press Release, Fin. Crimes Enf’t Network, FinCEN Issues Modified Southwest Border Geographic Targeting Order (Sept. 8, 2025). ↑

26. See also Currency Transaction Reporting:

    In cases where multiple businesses share a common owner, FinCEN guidance states that the presumption is that separately incorporated entities are independent persons. This FinCEN guidance indicates that the currency transactions of separately incorporated businesses should not automatically be aggregated as being on behalf of any one person simply because those businesses are owned by the same person. It is up to the bank to determine, based on information obtained in the ordinary course of business, whether multiple businesses that share a common owner are, in fact, being operated independently depending on all the facts and circumstances. Consistent with this FinCEN guidance, if the bank determines that the businesses are independent, then the common ownership does not require aggregation of the separate transactions of these businesses.

    However, if the bank determines that these businesses (or one or more of the businesses and the private accounts of the owner) are not operating separately or independently of one another or their common owner (e.g., the businesses are staffed by the same employees and are located at the same address, the bank accounts of one business are repeatedly used to pay the expenses of another business, or the business bank accounts are repeatedly used to pay the personal expenses of the owner), the bank may determine that aggregating the businesses’ transactions is appropriate because the transactions were made on behalf of a single person. Consistent with this FinCEN guidance, once the bank determines that the businesses are not independent of each other or of their common owner, then the transactions of these businesses should be aggregated going forward.

    FFIEC, Currency Transaction Reporting, BSA/AML Examination Manual  2–3 (citations omitted) (last visited Nov. 14, 2025); see also 31 C.F.R. § 1010.312 (“Before concluding any transaction with respect to which a report is required under § 1010.311, § 1010.313, § 1020.315, § 1021.311 or § 1021.313 of this chapter, a financial institution shall verify and record the name and address of the individual presenting a transaction, as well as record the identity, account number, and the social security or taxpayer identification number, if any, of any person or entity on whose behalf such transaction is to be effected.”). ↑

27. Anti–Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 70258 (Aug. 29, 2024) (the “RRE Release”). These regulations followed from the proposal by FinCEN, Anti–Money Laundering Regulations for Residential Real Estate Transfers, 89 Fed. Reg. 12424 (Feb. 16, 2024) (NPRM) (proposing 31 C.F.R. § 1031.320 (“Reports of residential real property transfers”)). See also Anti–Money Laundering Regulations for Real Estate Transactions, 86 Fed. Reg. 65589 (Dec. 8, 2021) (ANPR); Fin. Crimes Enf’t Network, Fact Sheet: FinCEN Issues Final Rule to Increase Transparency in Residential Real Estate Transfers (last visited Nov. 14, 2025); Residential Real Estate Frequently Asked Questions, Fin. Crimes Enf’t Network (last visited Nov. 14, 2025) [hereinafter RRE FAQs]. The RRE Rules, annotated to for example the defined terms, the RRE Release, and FinCEN’s RRE FAQs, are set forth in Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, FinCEN’s Residential Real Estate Reporting Rules, Annotated, Bus. L. Today (Dec. 9, 2025), published in concert with this article. ↑

28. See 31 C.F.R. § 1031.320(k)(1). ↑

29. See id. § 1031.320(b); see also RRE Release, 89 Fed. Reg. at 70259 (citation omitted):

    Most transfers of residential real estate are associated with a mortgage loan or other financing provided by financial institutions subject to AML/CFT program requirements. As non-financed transfers do not involve such financial institutions, such transfers can be and have been exploited by illicit actors of all varieties, including those that pose domestic threats, such as persons engaged in fraud or organized crime, and foreign threats, such as international drug cartels, human traffickers, and corrupt political or business figures. Non-financed transfers to legal entities and trusts heighten the risk that such transfers will be used for illicit purposes. Numerous public law enforcement actions illustrate this point. As such, FinCEN believes that the reporting of non-financed transfers to legal entities and trusts will benefit national security by facilitating law enforcement investigations into, and strategic analysis of, the use of residential real estate transfers having these particular characteristics to facilitate money laundering. ↑

30. See 31 C.F.R. § 1031.320(c). ↑

31. See id. § 1031.320(c)(4)(i):

    The reporting person described in paragraph (c)(1) of this section may enter into an agreement with any other person described in paragraph (c)(1) of this section to designate such other person as the reporting person with respect to the reportable transfer. The person designated by such agreement shall be treated as the reporting person with respect to the transfer. If reporting persons decide to use designation agreements, a separate agreement is required for each reportable transfer. ↑

32. See RRE Release, supra note 27. ↑

33. Press Release, Fin. Crimes Enf’t Network, FinCEN Announces Postponement of Residential Real Estate Reporting Until March 1, 2026 (Sept. 30, 2025); U.S. Dep’t of the Treasury, Exemptive Relief Order to Delay the Effective Date of the Residential Real Estate Rule (Sept. 30, 2025). ↑

34. Press Release, supra note 33. That form is available on FinCEN’s website: Real Estate Report Form, OMB No. 1506-0080 (Dec. 1, 2025). In an undated letter that post-dates September 9 from the American Land Title Association to FinCEN Director Andrea Gacki, a delay in the effective date of the RRE Rules was sought on basis including “if for no other reason than a final reporting form has not been released by FinCEN.” ↑

35. See 31 C.F.R. § 1031.320(a). ↑

36. Id. § 1031.320(b). ↑

37. Id. § 1031.320(c). ↑

38. Id. § 1031.320(d). ↑

39. Id. § 1031.320(e). ↑

40. Id. § 1031.320(f). ↑

41. Id. § 1031.320(g). ↑

42. Id. § 1031.320(h). ↑

43. Id. § 1031.320(i). ↑

44. Id. § 1031.320(j). ↑

45. Id. § 1031.320(k). ↑

46. Id. § 1031.320(l). ↑

47. Id. § 1031.320(m). ↑

48. Id. § 1031.320(n). ↑

49. See RRE Release, 89 Fed. Reg. at 70267–69 (discussing exempt transfers); id. at 70261:

    FinCEN has also made other amendments in the final rule that are intended to clarify and simplify the reporting requirements, such as clarifying the definition of residential real property. Additionally, the rule excludes several additional transfers from needing to be reported, including one designed to exempt certain transfers commonly executed for estate and tax planning purposes. ↑

50. See 31 C.F.R. § 1031.320(b)(2)(i). ↑

51. Id. § 1031.320(b)(2)(ii). ↑

52. Id. § 1031.320(b)(2)(iii). ↑

53. Id. § 1031.320(b)(2)(iv). ↑

54. Id. § 1031.320(b)(2)(v). ↑

55. Id. § 1031.320(b)(2)(vi). It should be emphasized that this exemption is limited by its terms to a transfer to a trust and does not encompass a transfer to a business entity. See also RRE Release, 89 Fed. Reg. at 70268 (“FinCEN also does not believe that this same logic can be extended to justify excepting transfers of property by an individual to a legal entity owned or controlled by such individual, as some commenters suggested.”). ↑

56. 31 C.F.R. § 1031.320(b)(2)(vii). ↑

57. Id. § 1031.320(b)(2)(viii). ↑

58. See Snejana Farberov, Federal Anti–Money Laundering Rule Cracks Down on All-Cash Home Purchases—Here’s Who Will Be Affected, SFGate.Com (Sept. 12, 2025) (“The language of the rule makes it clear that it does not apply to property purchases in which the buyer is an individual. In other words, a house hunter looking to buy a $500,000 single-family home without a mortgage will not be expected to report the deal. . . .”). ↑

59. See 31 C.F.R. § 1031.320(a); see also id. § 1031.320(c)(1) (setting forth a functional definition of “reporting person”). ↑

60. See id. § 1031.320(b)(2). ↑

61. “Non-financed transfer” is a defined term. Id. § 1031.320(n)(5) (“The term ‘non-financed transfer’ means a transfer that does not involve an extension of credit to all transferees that is: (i) Secured by the transferred residential real property; and (ii) Extended by a financial institution that has both an obligation to maintain an anti–money laundering program and an obligation to report suspicious transactions under this chapter.”); see also RRE Release, 89 Fed. Reg. at 70259 (footnote omitted):

    As non-financed transfers do not involve such financial institutions, such transfers can be and have been exploited by illicit actors of all varieties, including those that pose domestic threats, such as persons engaged in fraud or organized crime, and foreign threats, such as international drug cartels, human traffickers, and corrupt political or business figures. Non-financed transfers to legal entities and trusts heighten the risk that such transfers will be used for illicit purposes. Numerous public law enforcement actions illustrate this point.

    As such, FinCEN believes that the reporting of non-financed transfers to legal entities and trusts will benefit national security by facilitating law enforcement investigations into, and strategic analysis of, the use of residential real estate transfers having these particular characteristics to facilitate money laundering.

    The definition of “financial institution” is set forth at 31 C.F.R. § 1010.100(t); the incorporation of that defined term is directed by 31 C.F.R. § 1031.320(a). ↑

62. The defined term “transferee entity” exists in the exclusion, meaning, with one exception, “any person other than a transferee trust or an individual.” 31 C.F.R. § 1031.320(n)(10)(i). Note, however, that this defined term is not employed in the exceptions to the defined term “transferee entity.” See id. § 1031.320(n)(10)(ii). ↑

63. See 31 C.F.R. § 1031.320(b)(1); see also RRE Release, 89 Fed. Reg. at 70277 (“For clarity, the term ‘Residential real property’ is removed from the list of definitions found in 31 CFR 1031.320(n) and is instead defined in 31 CFR 1031.320(b).”). The term “cooperative housing corporation” is curious in that it is not defined in the RRE Rules or in FinCEN’s general definitions. See 31 C.F.R. §§ 1031.320(n), 1010.100. The term is employed in the Internal Revenue Code, but there it defines the treatment of certain payments made to and by an organization that meets the statutory requirements and limitations—it does not set forth an objective definition. I.R.C. § 116. It bears noting that the definition of “cooperative housing corporation” there is introduced by the phrase “For purposes of this section.” Id. § 116(b). Still, it goes on to provide:

    The term “cooperative housing corporation” means a corporation—

    (A) having one and only one class of stock outstanding,

    (B) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation,

    (C) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and

    (D) meeting 1 or more of the following requirements for the taxable year in which the taxes and interest described in subsection (a) are paid or incurred:

    (i) 80 percent or more of the corporation’s gross income for such taxable year is derived from tenant-stockholders.

    (ii) At all times during such taxable year, 80 percent or more of the total square footage of the corporation’s property is used or available for use by the tenant-stockholders for residential purposes or purposes ancillary to such residential use.

    (iii) 90 percent or more of the expenditures of the corporation paid or incurred during such taxable year are paid or incurred for the acquisition, construction, management, maintenance, or care of the corporation’s property for the benefit of the tenant-stockholders.

    I.R.C. § 116(b)(1). In order to fall within I.R.C. § 116(b)(1), an entity must be classified as a tax corporation. Without a bespoke definition of a “cooperative housing corporation,” it would seem that a limited liability company (“LLC”) taxed as a partnership or otherwise intentionally falling outside the scope of I.R.C. § 116(b)(1) could acquire a condominium complex, sell LLC interests that afford the owner a right of occupancy in (and even a right of subletting) a particular unit of the condominium, and avoid the reach of the RRE Rules. ↑

64. The definition of “single-family housing” as utilized in the Federal Home Loan Banks Housing Goals regulations provides, in part, that “single-family housing means a residence consisting of one to four dwelling units.” See 12 C.F.R. § 1281.1. Likely this is more coincidence than an effort at conformity. ↑

65. See also RRE Release, 89 Fed. Reg. at 70266:

    The revised definition addresses the difficulty raised by commenters in determining whether vacant or unimproved land is zoned or permitted for residential use by focusing on whether the transferee intends to build on the property a structure designed principally for occupancy by one to four families. Furthermore, the new provision added to the rule concerning reasonable reliance permits the reporting person to reasonably rely on information provided by the transferee to determine such intent. ↑

66. See 31 C.F.R. § 1031.320(c)(1); see also id. § 1031.320(d) (principal place of business address of reporting person must be a U.S. address). ↑

67. Id. § 1031.320(c)(i)–(vii). Note that each of “closing or settlement agent,” “closing or settlement statement,” and “recordation office” are themselves defined terms. Id. §§ 1031.320(n)(2), (3), (7). ↑

68. See also RRE Release, 89 Fed. Reg. at 70270 (“Associations representing real estate agents agreed with the absence in the cascade of functions typically associated with real estate agents, while two escrow industry commenters proposed including real estate agents as reporting persons.”). ↑

69. See infra notes 204–18 and accompanying text. ↑

70. See 31 C.F.R. § 1031.320(c)(2) (“If an employee, agent, or partner acting within the scope of such individual’s employment, agency, or partnership would be the reporting person as determined in paragraph (c)(1) of this section, then the individual’s employer, principal, or partnership is deemed to be the reporting person.”). ↑

71. See id. § 1031.320(c)(3) (“A financial institution that has an obligation to maintain an anti–money laundering program under this chapter is not a reporting person for purposes of this section.”). ↑

72. See id. § 1031.320(c)(4) (“If reporting persons decide to use designation agreements, a separate agreement is required for each reportable transfer.”); see also RRE Release, 89 Fed. Reg. at 70272 (“The agreement must be in writing and contain specified information, with a separate agreement required for each reportable transfer.”); id (“accordingly the final rule does not permit a blanket designation agreement in lieu of a separate designation agreement for each relevant transfer.”). ↑

73. See 31 C.F.R. § 1031.320(c)(4)(i) (“The reporting person described in paragraph (c)(1) of this section may enter into an agreement with any other person described in paragraph (c)(1) of this section to designate such other person as the reporting person with respect to the reportable transfer. The person designated by such agreement shall be treated as the reporting person with respect to the transfer.”).

    It should be noted that the person identified as the “reporting person” pursuant to a designation agreement must be a person in the cascade; it is not permitted that the designation agreement designate a person (whether an individual or an entity) who is outside the set of persons identified in the cascade. See 31 C.F.R. § 1031.320(c)(4)(i) (“The reporting person described in paragraph (c)(1) of this section may enter into an agreement with any other person described in paragraph (c)(1) of this section to designate such other person as the reporting person with respect to the reportable transfer.”) (emphasis added). See also RRE Release, 89 Fed. Reg. at 70263 (“as that attorney might allow other parties in the reporting cascade to file the Real Estate Report through a designation agreement”) (emphasis added); RRE Release, 89 Fed. Reg. at 70272:

    The final rule also does not allow for third-party vendors who are not described in the reporting cascade to be designated as a reporting person, as such vendors are not financial institutions that can be regulated by FinCEN; a reporting person could outsource the preparation of the form to a third-party vendor, but the ultimate responsibility for the completion and filing of the report would lie with the reporting person. ↑

74. See id. § 1031.320(c)(4)(ii):

    (ii) A designation agreement shall be in writing, and shall include:

    (A) The date of the agreement;

    (B) The name and address of the transferor;

    (C) The name and address of the transferee entity or transferee trust;

    (D) Information described in paragraph (g) identifying transferred residential real property;

    (E) The name and address of the person designated through the agreement as the reporting person with respect to the transfer; and

    (F) The name and address of all other parties to the agreement. ↑

75. See id. § 1031.320(l). ↑

76. See id. § 1031.320(d). The address provided must be a U.S. address, effectively excluding from the scope of “reporting person” anyone whose work address is outside the U.S. ↑

77. See id. § 1031.320(b) (“. . . to a transferee entity or a transferee trust”). ↑

78. See RRE Release, 89 Fed. Reg. at 70269:

    The definition of transferee entity was meant to include, for example, a corporation, partnership, estate, association, or limited liability company. Among the exceptions FinCEN proposed was an exception for any legal entity whose ownership interests are controlled or wholly owned, directly or indirectly, by an exempt entity. ↑

79. For these purposes, “person” is defined as “[a]n individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities.” See 31 C.F.R. § 1010.100(mm); see also id. § 1031.320(a). ↑

80. Id. § 1031.320(n)(10)(i). ↑

81. Id. § 1010.100(mm); see also id. § 1031.320(a). ↑

82. See id. § 1031.320(b)(2); see also supra notes 49–58 and accompanying text. ↑

83. See 31 C.F.R. § 1031.320(n)(10)(ii). ↑

84. See id. § 1031.320(e)(1). ↑

85. If that address is not in the United States, there must be reported as well “the street address of the primary location in the United States where the transferee entity conducts business, if any.” See id. § 1031.320(e)(1)(C). ↑

86. See id. § 1031.320(e)(1)(i)(D) (“(2) If the transferee entity has not been issued an IRS TIN, a tax identification number for the transferee entity that was issued by a foreign jurisdiction and the name of such jurisdiction; or (3) If the transferee entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction.”). ↑

87. The determination of who is a beneficial owner is based on a definition discussed below. See 31 C.F.R. § 1031.320(n)(1); infra notes 185–202 and accompanying text. ↑

88. See 31 C.F.R. § 1031.320(e)(1)(ii)(A). ↑

89. See id. § 1031.320(e)(1)(ii)(B). ↑

90. See id. § 1031.320(e)(1)(ii)(C). ↑

91. See id. § 1031.320(e)(1)(ii)(D). ↑

92. See id. § 1031.320(e)(1)(ii)(E) (“Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a non-expired passport issued by a foreign government.”). ↑

93. See also id. § 1031.320(n)(8):

    The term “signing individual” means each individual who signed documents on behalf of the transferee as part of the reportable transfer. However, it does not include any individual who signed documents as part of their employment with a financial institution that has both an obligation to maintain an anti–money laundering program and an obligation to report suspicious transactions under this chapter. ↑

94. See id. § 1031.320(e)(1)(iii). ↑

95. See id. § 1031.320(e)(1)(iii)(D) (“(1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a non-expired passport issued by a foreign government to the individual.”). ↑

96. See id. § 1031.320(e)(1)(iii)(E) (“Description of the capacity in which the individual is authorized to act as the signing individual; and (F) If the signing individual is acting in that capacity as an employee, agent, or partner, the name of the individual’s employer, principal, or partnership.”). ↑

97. See id. § 1031.320(e)(2). ↑

98. See id. § 1031.320(e)(2)(i)(A). ↑

99. See id. § 1031.320(e)(2)(i)(B). ↑

100. See id. § 1031.320(e)(2)(i)(C) (“Unique identifying number, if any, consisting of: (1) IRS TIN; or (2) Where an IRS TIN has not been issued, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.”). ↑

101. See id. § 1031.320(e)(2)(i)(D). ↑

102. See id. § 1031.320(e)(2)(ii). ↑

103. See id. § 1031.320(e)(2)(ii)(C) (“(1) The street address that is the trustee’s principal place of business; and (2) If such principal place of business is not in the United States, the street address of the primary location in the United States where the trustee conducts business, if any.”). ↑

104. See id. § 1031.320(e)(2)(ii)(D):

     Unique identifying number, if any, consisting of: (1) The IRS TIN of the trustee; (2) In the case that a trustee has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (3) In the case that a trustee has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction. ↑

105. Id. § 1031.320(e)(2)(ii)(E). ↑

106. The definition of who is a beneficial owner with respect to a trust is reviewed below. See id. § 1031.320(n)(1)(ii); infra notes 192–97 and accompanying text. ↑

107. See 31 C.F.R. § 1031.320(e)(2)(iii). ↑

108. See id. § 1031.320(e)(2)(iii)(E) (“Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a non-expired passport issued by a foreign government.”). ↑

109. Id. § 1031.320(e)(2)(iii)(F). ↑

110. See id. § 1031.320(f)(1)(i). ↑

111. See id. § 1031.320(f)(1)(ii). ↑

112. See id. § 1031.320(f)(1)(iii). ↑

113. See id. § 1031.320(f)(1)(iv) (“(A) An IRS TIN; or (B) Where an IRS TIN has not been issued: (1) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (2) The unique identifying number and the issuing jurisdiction from a non-expired passport issued by a foreign government to the individual.”). ↑

114. See id. § 1031.320(f)(2)(i). ↑

115. See id. § 1031.320(f)(2)(ii). ↑

116. See id. § 1031.320(f)(2)(iii) (“Complete current address consisting of: (A) The street address that is the legal entity’s principal place of business; and (B) If the principal place of business is not in the United States, the street address of the primary location in the United States where the legal entity conducts business, if any.”). ↑

117. See id. § 1031.320(f)(2)(iv) (“(A) An IRS TIN; (B) In the case that the legal entity has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (C) In the case that the legal entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction.”). ↑

118. See id. § 1031.320(f)(3)(i). ↑

119. See id. § 1031.320(f)(3)(ii). ↑

120. See id. § 1031.320(f)(3)(iii) (“(A) IRS TIN; or (B) Where an IRS TIN has not been issued, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.”). ↑

121. See id. § 1031.320(f)(3)(iv)(A). ↑

122. See id. § 1031.320(f)(3)(iv)(B). ↑

123. See id. § 1031.320(f)(3)(iv)(C) (“(1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a non-expired passport issued by a foreign government.”). ↑

124. See id. § 1031.320(f)(3)(v)(A). ↑

125. See id. § 1031.320(f)(3)(v)(B). ↑

126. See id. § 1031.320(f)(3)(v)(C) (“Complete current address consisting of: (1) The street address that is the legal entity’s principal place of business; and (2) If the principal place of business is not in the United States, the street address of the primary location in the United States where the legal entity conducts business, if any.”). ↑

127. See id. § 1031.320(f)(3)(v)(D) (“(1) An IRS TIN; (2) In the case that the legal entity has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (3) In the case that the legal entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction.”). ↑

128. “Residential real property” is defined not in subsection (n) of the RRE Rules, but rather as part of the definition of “reportable transfer.” See id. § 1031.320(b)(i)–(iv). ↑

129. See id. § 1031.320(g). Note that “date of closing” is a defined term. Id. § 1031.320(n)(4) (“The term ‘date of closing’ means the date on which the transferee entity or transferee trust receives an ownership interest in residential real property.”). ↑

130. See id. § 1031.320(h)(1)(i). ↑

131. See id. § 1031.320(h)(1)(ii). ↑

132. See id. § 1031.320(h)(1)(iii). ↑

133. See id. § 1031.320(h)(1)(iv). ↑

134. See id. § 1031.320(h)(1). Note that “financial institution” is a defined term. Id. §§ 1031.320(a), 1010.100(t). ↑

135. See id. § 1031.320(h)(2). ↑

136. See id. § 1031.320(h)(1). ↑

137. See id. § 1031.320(i); see also id. § 1031.320(b) (definition of “reportable transfer”). ↑

138. See id. § 1010.380(b); see also Fin. Crimes Enf’t Network FAQs, FAQ K.4 (Dec. 12, 2023); Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59513:

     In addition, the final rule does not adopt a good faith or other standard regarding the requirements to update or correct reports. The CTA places the reporting responsibility on reporting companies, and this responsibility includes the obligation to report accurately. The CTA also requires reporting companies to update information when it changes. ↑

139. See id. 31 C.F.R. § 1031.320(j)(1):

     Except as described in paragraph (j)(2) of this section, the reporting person may rely upon information provided by other persons, absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person.

     See also RRE Release, 89 Fed. Reg. at 70261:

     The final rule imposes a reporting requirement on “reporting persons” that are involved in certain kinds of transfers of residential real property. In response to comments, the rule adopts a reasonable reliance standard, allowing reporting persons to, in general, reasonably rely on information obtained from other persons. ↑

140. See 31 C.F.R. § 1031.320(e)(1)(ii). ↑

141. See id. § 1031.320(e)(2)(iii). ↑

142. See id. § 1031.320(j)(2):

     For purposes of reporting information described in paragraphs (e)(1)(ii) and (e)(2)(iii) of this section, the reporting person may rely upon information provided by the transferee or a person representing the transferee in the reportable transfer, absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person, if the person providing the information certifies the accuracy of the information in writing to the best of the person’s knowledge.

     See also RRE Release, 89 Fed. Reg. at 70258:

     The final rule adopts a reasonable reliance standard, allowing reporting persons to rely on information obtained from other persons, absent knowledge of facts that would reasonably call into question the reliability of that information. For purposes of reporting beneficial ownership information in particular, a reporting person may reasonably rely on information obtained from a transferee or the transferee’s representative if the accuracy of the information is certified in writing to the best of the information provider’s own knowledge.

     Id. at 70263 (citations omitted):

     In 31 CFR 1031.320(j), the final rule adopts a reasonable reliance standard that allows reporting persons to reasonably rely on information provided by other persons. As a result, the reporting person generally may rely on information provided by any other person for purposes of reporting information or to make a determination necessary to comply with the final rule, but only if the reporting person does not have knowledge of facts that would reasonably call into question the reliability of the information. This reasonable reliance standard is consistent with that used by certain financial institutions subject to customer due diligence requirements.

     This reasonable reliance standard is slightly more limited when a reporting person is reporting beneficial ownership information of transferee entities or transferee trusts. As expressed in the proposed rule, and as adopted in the final rule, when a reporting person is collecting the beneficial ownership information of transferee entities and transferee trusts. In those situations, the reasonable reliance standard applies only to information provided by the transferee or the transferee’s representative and only if the person providing the information certifies the accuracy of the information in writing to the best of their knowledge. ↑

143. See 31 C.F.R. § 1031.320(k)(2). ↑

144. See id. § 1031.320(k)(3). ↑

145. See id. § 1031.320(n)(4) (“The term ‘date of closing’ means the date on which the transferee entity or transferee trust receives an ownership interest in residential real property.”). In turn, “ownership interest” is a defined term. Id. § 1031.320(n)(6). ↑

146. See id. § 1031.320(l)(1); see also id. § 1031.320(j)(2). ↑

147. See id. § 1031.320(l)(1); see also 31 C.F.R. § 1031.320(c)(4). ↑

148. See RRE Release, 89 Fed. Reg. at 70276 (“The final rule retains the requirement that certain records be kept for five years.”). ↑

149. See 31 C.F.R. § 1031.320(m)(1); see also 31 U.S.C. § 5318(g)(2):

     (A) In general.—If a financial institution or any director, officer, employee, or agent of any financial institution, voluntarily or pursuant to this section or any other authority, reports a suspicious transaction to a government agency—

     (i) neither the financial institution, director, officer, employee, or agent of such institution (whether or not any such person is still employed by the institution), nor any other current or former director, officer, or employee of, or contractor for, the financial institution or other reporting person, may notify any person involved in the transaction that the transaction has been reported or otherwise reveal any information that would reveal that the transaction has been reported[]; and

     (ii) no current or former officer or employee of or contractor for the Federal Government or of or for any State, local, tribal, or territorial government within the United States, who has any knowledge that such report was made may disclose to any person involved in the transaction that the transaction has been reported, or otherwise reveal any information that would reveal that the transaction has been reported, other than as necessary to fulfill the official duties of such officer or employee.

     See also RRE Release, 89 Fed. Reg. at 70276:

     As in the NPRM, FinCEN recognizes that the confidentiality provision in 31 U.S.C. 5318(g)(2) applying to financial institutions that file SARs is not feasible with the Real Estate Report, as reporting persons needs to collect information directly from the subjects of the Report, thus revealing its existence. Moreover, all parties to a non-financed residential real estate transfer subject to this rule would already be aware that a report would be filed, given such filing is non-discretionary, rendering confidentiality unnecessary. ↑

150. See 31 C.F.R. § 1031.320(m)(2) (“A reporting person under this section is exempt from the requirement to establish an anti–money laundering program, in accordance with 31 CFR 1010.205(b)(1)(v).”). ↑

151. See id. § 1031.320(n). ↑

152. See id. § 1031.320(n)(4). ↑

153. See id. § 1031.320(n)(1). ↑

154. See id. § 1031.320(n)(2). ↑

155. See id. § 1031.320(n)(3). ↑

156. See id. § 1031.320(n)(5). ↑

157. See id. § 1031.320(n)(6). ↑

158. See id. § 1031.320(n)(7). ↑

159. See id. § 1031.320(n)(8). ↑

160. See id. § 1031.320(n)(9) (“The term ‘statutory trust’ means any trust created or authorized under the Uniform Statutory Trust Entity Act or as enacted by a State. For the purposes of this subpart, statutory trusts are transferee entities.”). Note that this definition does not include the Delaware Statutory Trust, Del. Code tit. 12, § 3801 et seq., as that statute predates and is not an adoption of the Uniform Act. See also Thomas E. Rutledge & Ellisa O. Habbart, The Uniform Statutory Trust Entity Act: A Review, 65 Bus. Law. 1055 (Aug. 2010). ↑

161. See 31 C.F.R. § 1031.320(n)(10). ↑

162. See id. § 1031.320(n)(11). ↑

163. See id. § 1031.320(c)(1). ↑

164. See id. § 1031.320(c)(1)(i). ↑

165. See id. §§ 1031.320(n)(1)(i)(A), 1031.320(n)(1)(i)(B), 1031.320(n)(1)(ii). ↑

166. See id. § 1031.320(g)(3). ↑

167. See id. § 1031.320(k)(3)(i)–(ii). ↑

168. See id. § 1031.320(b)(1). ↑

169. See id. ↑

170. See id. § 1031.320(n)(4). ↑

171. See id. § 1031.320(c)(1)(iii). ↑

172. See id. §§ 1031.320(e)(1)(iii), 1031.320(e)(1)(iii)(E), 1031.320(e)(1)(iii)(F). ↑

173. See id. § 1031.320(n)(11)(i). ↑

174. See id. § 1031.320(n)(11)(ii)(C). A statutory trust will be rather a transferee entity. ↑

175. See id. § 1031.320(n)(10)(i). ↑

176. See id. § 1031.320(n)(10)(ii). Most of these organizations are defined by reference to the Reporting Rules adopted under the CTA. ↑

177. See id. § 1031.320(b)(1). ↑

178. See id. § 1031.320(c)(4)(ii)(C). ↑

179. See, e.g., id. §§ 1031.320(e)(1)(i), 1031.320(e)(1)(ii), 1031.320(h)(1). ↑

180. Id. § 1031.320(n)(11). ↑

181. See id. § 1010.320(n)(9) (“For purposes of this subpart, statutory trusts are transferee entities.”); see also RRE Release, 89 Fed. Reg. at 70269 (“Similarly, the proposed rule excluded statutory trusts from the definition of a transferee trust but, instead, proposed to capture statutory trusts within the definition of a transferee entity.”). ↑

182. See 31 C.F.R. § 1031.320(n)(1)(i). ↑

183. See id. § 1031.320(n)(1)(ii). ↑

184. See id. §§ 1031.320(n)(1)(i)(A), 1031.320(n)(1)(i)(B), 1031.320(n)(1)(ii). ↑

185. See id. § 1031.320(n)(1)(i)(A) (“The beneficial owners of a transferee entity are the individuals who would be the beneficial owners of the transferee entity on the date of closing if the transferee entity were a reporting company under 31 CFR 1010.380(d) on the date of closing.”); see also RRE FAQ D.3 (“This definition is derivative of the definition of this term in the FinCEN’s Beneficial Ownership Information (BOI) Reporting Rule.”). ↑

186. See 31 C.F.R. § 1010.380(d) (“Beneficial owner. For purposes of this section, the term ‘beneficial owner,’ with respect to a reporting company, means any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.”). For an exegesis of this definition in the Reporting Rules, see Ribstein, Keatinge & Rutledge, supra note 11, §§ 4A:12–4A:15. ↑

187. The impact of the IFR upon the CTA and the Reporting Rules is reviewed in the second installment of this article. ↑

188. 31 C.F.R. § 1031.320(n)(1)(i)(B). In the CTA’s Reporting Rules, in contrast with the RRE Rules, a nonprofit under I.R.C. § 501(c) was not a “reporting company” that needed to assess its beneficial owners under the substantial control test. See 31 U.S.C. § 5336(a)(11)(B)(xix); see also 31 C.F.R. § 1010.380(c)(2)(xix). To address the gap, the RRE Rules provide a rule for assessing the “beneficial owners” of a nonprofit organization, directing that they are to be assessed under only the substantial control test, to the exclusion of the ownership test. This is not much of a clarification except to make it clear that an ownership analysis is not required, which if undertaken would in almost every instance yield no results. ↑

189. See also 31 C.F.R. § 1010.380(f)(10) (definition of “United States person”). ↑

190. Added by IFR, 90 Fed. Reg. at 13697. ↑

191. Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024); see also Ribstein, Keatinge & Rutledge, supra note 11, § 1:10. ↑

192. 31 C.F.R. § 1031.320(n)(1)(ii)(A)–(B). ↑

193. See id. § 1031.320(n)(1)(ii)(C); see also id. § 1010.380(d)(2)(ii)(C)(2)(i)–(ii). ↑

194. See id. § 1031.320(n)(1)(ii)(D); see also id. § 1010.380(d)(2)(ii)(C). ↑

195. See id. § 1031.320(n)(10)(ii). ↑

196. Id. § 1031.320(n)(1)(ii)(E). ↑

197. See id. § 1031.320(n)(1)(ii)(F) (“A beneficial owner of any trust that holds at least one of the positions in the transferee trust described in paragraphs (n)(1)(ii)(A) through (D) of this section, except when the trust meets the criteria set forth in paragraphs (n)(11)(ii)(A) through (D). Beneficial ownership of any such trust is determined under this paragraph (n)(1)(ii), utilizing the criteria for beneficial owners of a transferee trust.”). ↑

198. See Thomas E. Rutledge & Robert R. Keatinge, LLPs Are Not CTA Reporting Companies, Bus. L. Today (Oct. 10, 2024). ↑

199. See supra notes 78–83 and accompanying text. ↑

200. See Unif. P’ship Act §§ 6(1), 202(a) (Unif. L. Comm’n 1997/2013); Del. Code tit. 6, § 15-202(a); Colo. Rev. Stat. § 7-64-202(1); Ky. Rev. Stat. Ann. §§ 362.175(1), 362.1-202(1); Va. Code § 50-73.88A. ↑

201. See I.R.C. § 761(a); see also 2 Larry E. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 22:20 (Dec. 2025). ↑

202. See I.R.C. § 761(f); see also Ribstein, Keatinge & Rutledge, supra note 201, § 22:18. ↑

203. See also RRE Release, 89 Fed. Reg. at 70264 (citations omitted):

     Consistent with the NPRM, FinCEN believes that it is unnecessary to list potential penalties in the regulatory text because the applicable penalties are already set forth by statute. Negligent violations of the final rule could result in a civil penalty of, as of the publication of the final rule, not more than $1,394 for each violation, and an additional civil money penalty of up to $108,489 for a pattern of negligent activity.

     Willful violations of the final rule could result in a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both.

     Such violations also could result in a civil penalty of, as of the publication of the final rule, not more than the greater of the amount involved in the transaction (not to exceed $278,937) or $69,733.

     This penalty structure generally applies to any violation of a BSA requirement.

     FinCEN intends to conduct outreach to potential reporting persons on the need to comply with the final rule’s requirements. ↑

204. See 31 C.F.R. § 1031.320(c)(1). ↑

205. See supra notes 72–75 and accompanying text. ↑

206. See 31 C.F.R. § 1031.320(c)(1)(i). ↑

207. See id. § 1031.320(c)(1)(ii). ↑

208. See id. § 1031.320(c)(1)(iii). ↑

209. See id. § 1031.320(c)(1)(iv). ↑

210. See id. § 1031.320(c)(1)(v). It should be noted that use of the lawyer’s trust account for disbursal is often cited as of great concern to FinCEN and, for a lot of reasons, this should be approached with caution. ↑

211. See id. § 1031.320(c)(1)(vi). ↑

212. See id. § 1031.320(c)(1)(vii). ↑

213. See RRE Release, 89 Fed. Reg. at 70262–63 (III(B)(3) (Attorneys as Potential Reporting Persons)) (arguing, based upon case law interpreting lawyers’ duties under the Bank Secrecy Act dealing with reporting with respect to the payment of funds to lawyers as fees or into their trust accounts, that lawyers are broadly obligated to comply with FinCEN’s AML rules). ↑

214. See, e.g., Fin. Action Task Force, Guidance for a Risk-Based Approach for Legal Professionals, at Recommendations 10 (2019) (regarding verification of beneficial ownership of the client and of any beneficial owners of the client, including “the types of activities in which the [client] participates”). ↑

215. Compare Frequently Asked Questions, Fin. Crimes Enf’t Network, CTA FAQs E-3, E-5, E-6 (last visited Nov. 14, 2025) (which appear to go out of their way to require that an attorney be listed as a company applicant even where others were performing the actions of a company applicant by referring to the “primarily responsible for overseeing, preparation and filing of a reporting company’s incorporation documents” or “if more than one person is involved in the filing of the document, the person who is primarily responsible for directing or controlling the filing”), with 31 C.F.R. § 1031.320(c) (which speaks of the reporting person as “the person that prepares the closing and settlement statement” or “the person that files . . . the deed or other instrument that transfers ownership . . .” or “the person that prepares the deed . . .”). See also 31 C.F.R. § 1031.320(n)(2) (which defines a “closing or settlement agent” as “any person, whether or not acting as an agent for a title agent or company, a licensed attorney, real estate broker, or real estate salesperson, who for another and with or without a commission, fee, or other valuable consideration and with or without the intention or expectation of receiving a commission, fee, or other valuable consideration, directly or indirectly, provides closing or settlement services incident to the transfer of residential real property.”); id. § 1031.320(c)(1)(i) (defining the reporting person as the person designated as “settlement or closing agent.”). ↑

216. See Model Rules of Pro. Conduct r. 1.2(d) (Am. Bar Ass’n 2025) (“A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.”). ↑

217. See Robert R. Keatinge, Comments on Changes to Rule 1.16, SSRN (Oct. 4, 2024); see also Ribstein, Keatinge & Rutledge, supra note 11, §§ 3:2, 4A:1, 4A:37. ↑

218. ABA Standing Comm. on Ethics & Pro. Resp., Formal Op. 24-513 (Aug. 23, 2024). ↑

219. To put it bluntly, rely upon them at your own risk; we are not your attorneys or attorneys for your clients. ↑

220. See 31 C.F.R. § 1031.320(b)(1). ↑

221. The 31 C.F.R. § 1031.320(b)(2)(vi) exemption is limited by its terms to a transfer to a trust and does not include a transfer to a business entity. See also RRE Release, 89 Fed. Reg. at 70268 (“FinCEN also does not believe that this same logic can be extended to justify excepting transfers of property by an individual to a legal entity owned or controlled by such individual, as some commenters suggested.”). ↑

222. See 31 C.F.R. § 1031.320(n)(5). ↑

223. See id. § 1031.320(c)(1). ↑

224. See id. § 1031.320(b)(2)(viii). ↑

225. See id. § 1031.320(b)(1)(ii). ↑

226. See id. § 1031.320(j)(1); see also RRE Release, 89 Fed. Reg. at 70266:

     The revised definition addresses the difficulty raised by commenters in determining whether vacant or unimproved land is zoned or permitted for residential use by focusing on whether the transferee intends to build on the property a structure designed principally for occupancy by one to four families. Furthermore, the new provision added to the rule concerning reasonable reliance permits the reporting person to reasonably rely on information provided by the transferee to determine such intent. ↑

227. See 31 C.F.R. § 1031.320(n)(5). ↑

228. See id. § 1031.320(b)(1). ↑

229. See id. § 1031.320(c)(1). ↑

230. See id. § 1031.320(b)(1). ↑

231. See id. ↑

232. See id. ↑

233. Contrast id. § 1031.320(b)(2)(vi). ↑

234. See id. § 1031.320(n)(10)(i). ↑

235. See id. § 1031.320(n)(5). ↑

236. See id. § 1031.320(c)(1)(vii). ↑

237. See id. § 1031.320(b)(1). ↑

238. See id. § 1031.320(n)(5). ↑

239. See id. § 1031.320(c)(1). ↑

240. See id. § 1031.320(b)(2)(vi). ↑

241. See id. § 1031.320(b)(1). ↑

242. See id. § 1031.320(n)(5). ↑

243. See id. § 1031.320(c)(1). ↑

244. See also id. § 1031.320(n)(9). ↑

245. See id. §§ 1031.320(n)(11)(ii)(C), 1010.320(n)(9). ↑

246. See id. § 1031.320(e)(2). ↑

247. See id. § 1031.320(e)(1). ↑

248. See id. § 1031.320(b)(1). ↑

249. See also id. § 1031.320(j)(1); see also RRE Release, 89 Fed. Reg. at 70266:

     The revised definition addresses the difficulty raised by commenters in determining whether vacant or unimproved land is zoned or permitted for residential use by focusing on whether the transferee intends to build on the property a structure designed principally for occupancy by one to four families. Furthermore, the new provision added to the rule concerning reasonable reliance permits the reporting person to reasonably rely on information provided by the transferee to determine such intent. ↑

250. See Ky. Rev. Stat. Ann. ch. 386A. ↑

251. See 31 C.F.R. § 1031.320(b)(1). ↑

252. See id. ↑

253. See also RRE Release, 89 Fed. Reg. at 70266:

     To address comments that requested clarity on whether mixed-use property qualifies as residential real property, the definition of residential real property also clarifies that separate residential units within a building, such as individually owned condominium units, as well as entire buildings designed for occupancy by one to four families, are included. ↑

254. See 31 C.F.R. § 1031.320(n)(5). ↑

255. See id. § 1031.320(n)(5)(1). ↑

256. See id. § 1031.320(c)(1). ↑

257. Senate Joint Resolution 15 provides in substance: “That Congress disapproves the final rule submitted by the Financial Crimes Enforcement Network relating to ‘Anti–Money Laundering Regulations for Residential Real Estate Transfers’ (89 Fed. Reg. 70258 (August 29, 2024)), and such rule shall have no force or effect.” S.J. Res. 15, 119th Cong. (2025–2026). ↑

258. House Joint Resolution 55 provides in substance: “That Congress disapproves the rule submitted by the Financial Crimes Enforcement Network relating to ‘Anti–Money Laundering Regulations for Residential Real Estate Transfers’ (89 Fed. Reg. 70258 (August 29, 2024)), and such rule shall have no force or effect.” H.J. Res. 55, 119th Cong. (2025–2026). ↑

259. See Flowers Title Cos. LLC v. Bessent, No. 6:25-cv-00127 (E.D. Tex. filed Apr. 4, 2025); Corley v. U.S. Dep’t of the Treasury, No. 5:25-cv-00086 (N.D. Tex. filed Apr. 17, 2025); Fid. Nat’l Fin., Inc. v. Bessent, No. 3:25-cv-00554 (M.D. Fla. filed May 20, 2025); see also Kelly Phillips Erb, Lawsuit Challenges a New Rule Requiring Reporting Details of Cash Real Estate Purchases, Forbes (Apr. 25, 2025) (reviewing the Flowers Title lawsuit); Press Release, Tex. Pub. Pol’y Found., TPPF Sues FinCEN over Constitutionality of Real Estate Transfer Rule (Apr. 17, 2025) (discussing the Corley complaint); Robert Maddox & Jonathan “Jack” Harrington, Will There Be Light? FinCEN’s New Reporting Rule Faces Legal Challenge, Bradley (May 30, 2025) (discussing the Fidelity National complaint). As of October 5, 2025, the status of each of these cases was as follows:

     • In the Flowers Title case, a summary judgment briefing schedule was set on July 17, 2025 (docket item 9). An amended complaint was filed on July 15 (docket item 11), and thereafter the plaintiffs filed their motion for summary judgment on July 16 (docket item 12). The government filed its response on August 15 (docket item 14), and on August 29 a reply was filed by the plaintiffs (docket item 17), with a further reply filed by the government on September 12 (docket item 18). An amicus brief was also filed (docket item 20). On November 14 a scheduling order was entered setting the argument of the pending motions for summary judgment for December 17, 2025 (docket item 23). However, on November 18 a superseding order was issued delaying that hearing until January 13, 2026 (docket item 26).
     • In the Corley case, a motion for summary judgment was filed by the plaintiffs on May 8, 2025 (docket items 10–12). However, it was only on July 8 that a briefing schedule for summary judgment was entered (docket item 15). Both sides filed for summary judgment on August 12 (docket items 16 and 17), with responses filed on August 26 (docket items 18 and 19). The government filed a reply brief on September 11 (docket item 20); the docket does not reflect the filing of a reply brief by the plaintiffs. As of October 1, no oral argument had been scheduled.
     • Turning to the Fidelity National case, it was referred to a magistrate judge on May 28 for ruling on all nondispositive motions and the issuance of a report and recommendations on dispositive motions (docket item 12). On July 30, after a hearing (docket item 26), a briefing schedule for summary judgment was issued (docket item 27.). The plaintiff filed their motion for summary judgment on August 25 (docket item 35) and that day also filed a motion for a preliminary injunction against the enforcement of the rules pending resolution of the suit (docket item 36). A briefing schedule as to that motion was entered on August 29 (docket item 40). Oral argument on the motion for a preliminary injunction was scheduled for September 30, 2025 (docket item 63). The government filed its cross-motion for summary judgment on September 26, 2025 (docket item 64). By a joint motion, the scheduled oral argument on the requested injunctive relief was canceled until March 1, 2026, in light of the delay of the RRE Rules’ effective date (docket items 69 and 70). Oral argument was rescheduled for November 18 (docket item 77), and the matters were taken under advisement (docket item 79).

     ↑

260. See Press Release, Fin. Crimes Enf’t Network, FinCEN Renews Residential Real Estate Geographic Targeting Orders (Oct. 9, 2025). ↑

261. See Fin. Crimes Enf’t Network, Geographic Targeting Order § II.A.2.ii (effective Oct. 10, 2025) [hereinafter GTO]. ↑

262. See 31 C.F.R. § 1031.320(b)(1). ↑

263. See GTO § II.A.1. ↑

264. See 31 C.F.R. § 1031.320(c)(1). ↑

265. See GTO § II.2.ii. ↑

266. See 31 C.F.R. § 1031.320(b)(1). ↑

267. See GTO § XII.A.2.i (“purchased”). ↑

268. See also RRE Release, 89 Fed. Reg. at 70268 (“FinCEN also does not believe that this same logic can be extended to justify excepting transfers of property by an individual to a legal entity owned or controlled by such individual, as some commenters suggested.”); RRE FAQ B.3. ↑

269. See GTO § III.A.1.ii. ↑

270. See 31 C.F.R. §§ 1031.320(b)(1)(i), 1031.320(n)(9). ↑

271. See GTO § III.A.1.ii. ↑

272. See 31 C.F.R. § 1031.320(n)(10)(ii). ↑

273. See Christina M. Houston, Robert R. Keatinge, Thomas E. Rutledge & James J. Wheaton, What Fresh Hell Can This Be? Beneficial Ownership Reporting and the CTA, Bus. L. Today (Dec. 10, 2025). ↑

The built environment encompasses all human-made spaces and structures where people live, work, and move. On September 19, at the American Bar Association (“ABA”) Business Law Section Fall Meeting, a CLE program presented by the Corporate Sustainability Law Committee explored how evolving legal, financial, and insurance frameworks are shaping physical structures, land use, systems, and services for sustainable real estate development.

The panelists for the CLE program—Elizabeth Beardsley with the U.S. Green Building Council, Jenna Kirkpatrick Howard with Lockton, Amanda Schermer MacVey with Venable LLP, and Elizabeth Yazgi with LSTA, Inc.—addressed sustainability considerations for new and existing buildings, financing mechanisms for energy efficiency and decarbonization retrofits and new builds, risk mitigation strategies amid climate resilience considerations, and practical solutions to implementation barriers. Attendees gained insights essential for competence in advising clients on emerging standards, legal requirements, and best practices for property ownership and the future of our nation’s buildings, parks, transportation systems, bridges, and other human-made spaces and structures that shape how people live, work, and recreate.

Howard began the program by offering data and statistics on the growth in number, severity, and cost of climate-related events. She noted property insurers have closely monitored the financial and economic impacts of changing climate and weather, with the 2020s off to an ominous start. She reported that there was $89 billion in average annual incurred property insurance losses between 2020 and 2023 and twenty-seven events in the United States alone in 2024 that caused at least $1 billion in economic damage with combined disaster costs of $182.7 billion. She warned that climate-related disasters are projected to cause economic losses of $12.5 trillion worldwide by 2050.

MacVey discussed the role of attorneys in guiding clients through evolving laws, codes, and regulations relating to the construction and operation of buildings, which surprisingly account for approximately 33 percent of carbon dioxide emissions. MacVey noted the expanding role of local building and energy codes and explained the ethical standards adopted by industry organizations for design professionals and engineers. She touched upon the impact of the ABA’s House of Delegates approval of Resolution 513 on August 5, 2024, regarding the importance of incorporating sustainability into the practice of law. She also spoke of the Building Code Adoption Tracking (“BCAT”) program of the Federal Emergency Management Agency (“FEMA”), which analyzes adoption of provisions related to natural hazard resistance, and discussed the significance of residential and commercial energy codes, especially in states that enacted significant legislation in 2024 and 2025 to advance sustainability objectives such as California, Hawaii, Maine, New York, Florida, and Vermont. MacVey insisted that business lawyers with clients in real estate development or use in these states in particular must have some level of competence in this rapidly changing landscape.

Beardsley described the range of policies for high-performing green buildings, including green building adoption for public buildings as well as incentives and permit conditions for private buildings, and how state and local governments use certifications to implement their goals for the built environment. She highlighted certain financial products for deep energy retrofits, efficiency upgrades, and new sustainable developments. She touched upon the evolution of LEED standards for sustainable building, and the latest version, LEED v5, which requires that all building projects conduct a climate resilience assessment. She also provided the essential concepts of green financial products such as Property Assessed Clean Energy (“PACE”) financing, energy performance contracts, and green mortgages that deliver both environmental benefits and economic returns. In a world of political backlash to environmental, social, and government (“ESG”) practices, Beardsley explained how the drivers of sustainable investing, climate risk, resource scarcity, and social resilience remain intact. As Triodos Investment Management put it in one of its commentary pieces, the “ESG backlash doesn’t make economic sense”—the backlash is political, not financial.

Yazgi discussed the factors driving financial market participants’ interest in sustainable debt financing and provided a walkthrough of the LSTA’s “framework documentation” governing the critical sustainable lending instruments available in the market—namely, sustainability-linked loans and use-of-proceeds, or thematic, instruments (“green,” “social,” and “transition” loans). She detailed how ESG products fit within the broader financial markets, noting the continued interest by lenders and investors in projects that contribute to specific social or environmental objectives and that direct capital towards sustainable investments. She also highlighted the inaugural Transition Loans Guide from the LSTA, Loan Market Association (“LMA”), and Asia Pacific Loan Market Association (“APLMA”), which reflects the advance of transition instruments. The latter have become increasingly adopted as entities in high-emitting sectors seek financing to transition from high-carbon to low-carbon operations and develop business models that contribute meaningfully to the decarbonization of the real economy. She closed by noting that, despite recent regulatory rollback and government retreat from ESG priorities, sustainable finance remains an important opportunity for companies and investors and illustrates that lending can be a critical source of capital.

The panelists each noted that all those involved in real estate development and use (and the lawyers that advise them) are adjusting to the legal and regulatory changes prompted by the evolving risk of weather-related disaster events. Industry standards are shifting toward strategic foresight, anticipating climate-related challenges and disruptions, and allocating resources for long-term value creation. Strategies for overcoming barriers facing sustainable projects—whether in financing, legal compliance, or risk mitigation—are essential. There is an emerging transformation of industry standards in our built environment that will result in changes to legal standards. Whether we look at soft or hard law, sustainability issues are core to existing and future real estate and relevant to multiple business units including, but not limited to, finance, procurement, and supply chains.

Howard ended the program by discussing the current state of the insurance marketplace for real estate development and use, changes to modeling based on the rapid pace of climate change, and how volatile insurance rates impact projects. She shared examples of how insurers incentivize property owners to sustainable investments. The session wrapped up with risk considerations factors when considering a location for real estate development.

Not touched upon during the panel discussion because of lack of time but also relevant given the program’s content is the pressing need for companies to prepare to protect their employees in the face of a climate-related crisis. Two pending litigations—Elijah Johnson et al. v. Mayfield Consumer Products, filed in the Graves County Circuit Court in Kentucky on December 16, 2021, and Peterson Family v. Impact Plastics, Inc. and Gerald O’Connor, filed in the Tennessee State Court on October 14, 2024—allege the defendant employers denied employees’ pleas to evacuate during severe weather warnings, with tragic results. Best practices now clearly require companies to not only adopt a written emergency plan but also approach climate-related risks as triggering Occupational Safety and Health Administration (“OSHA”) requirements to maintain a safe workplace.

While no one can predict when known regional threats such as hurricanes or wildfires will strike, employers can certainly plan for what to do if such crises unfold. Preparing for climate-related disasters will mitigate against legal risk, assure (as well as possible) employee safety, foster communication, and clarify realistic compensation and leave expectations. The climate-related emergency plan should address at a minimum: (i) clear and direct communication prompts; (ii) mass alert systems via text, email, or phone, if feasible; (iii) where employees should shelter physically in the workplace during a disaster if evacuation is not possible; (iv) what safety protocols are in place for on-site or essential workers; (v) when and how business operations will close or reopen; and (vi) training with emergency drills or simulations. OSHA’s How to Plan for Workplace Emergencies and Evacuations is a great resource.

Note that, under the Fair Labor Standards Act, nonexempt employees must be paid for hours actually worked. If employees are at work but are unable to work, like in the event of a power outage, pay is still required. If employees are sent home, assuming no employment-related tasks are performed at home, pay is not required. Exempt employees must receive their full salary if they work any part of the week. Employees may be required to use paid time off during closures, but such a policy should be in place and clearly communicated to employees in advance if the employer hopes to avoid confusion and complaints. Disasters are unpredictable, but violations of workplace safety and compensation statutes despite known severe weather risks are.

While the term “climate change” may be considered polarizing or politically charged, businesses and the attorneys that represent them must address the reality of changes in climate patterns and the growing number of severe climate-related events. Like all other foreseeable business-related risks, all applicable federal, state, and local laws must be reviewed in the due diligence assessment of such risk.

This article is related to a CLE program titled “Sustainability in Real Estate: State, Local, and Private Requirements and the Future of the Built Environment” that took place during the ABA Business Law Section’s 2025 Fall Meeting. To learn more about this topic, listen to an audio recording of the program, free for members.

This is the eleventh installment in the Year in Governance Series from the In-House Subcommittee of the ABA Business Law Section’s Corporate Governance Committee. Each month, the series will share key tips on a different corporate governance topic. To get involved in the Corporate Governance Committee, please visit the committee’s webpage.

A message from Kathy Jaffari: “As Chair of the Corporate Governance Committee, I would like to extend my sincere appreciation to the authors for this publication. The Corporate Governance Committee has ongoing opportunities for writing and volunteering with various projects, whether it’s an article you want to publish or a CLE that you want to present. Our Committee is dedicated to helping you promote informative resources for corporate governance practitioners. You may contact me at [email protected] to get involved.”

Executive sessions of a board of directors enable directors to speak freely, voice concerns openly, and arrive at informed decisions without external pressure. Ensuring that these sessions are properly conducted, documented, and legally compliant requires careful attention to both procedural and substantive considerations. A well-run session protects the corporation and builds trust and confidence in the decision-making process.

1. Differentiate between three types of executive sessions. The board should recognize three distinct types of executive sessions: (a) directors-only sessions for candid, non-legal discussions about board culture or dynamics; (b) privileged sessions with counsel present to provide legal advice; and (c) committee-level sessions, such as audit committee meetings with external auditors. Each type has different attendance rules, documentation requirements, and privilege implications. Codifying these distinctions in governance guidelines prevents confusion about who should attend and when privilege applies.
2. Schedule sessions strategically—and mix it up. Consider placing executive sessions on every regular board meeting agenda to normalize the practice and avoid signaling crisis. For listed companies, regular executive sessions are not optional—listing requirements mandate them. A regular cadence satisfies regulatory expectations while providing consistent opportunities for independent discussion, even when no pressing matters exist. Rather than leaving the sessions until the end (often the default approach), some boards include executive sessions at the midpoint of meetings or immediately following key discussions.
3. Use a “CEO in/out” protocol. During executive sessions, first invite the CEO for a portion to exchange candid feedback on strategic matters, then excuse the CEO for truly independent discussion. This approach maintains open communication while preserving independence. Designate the lead independent director or chair as the single voice for post-session feedback to the CEO, which can help to prevent sending mixed messages. Document who attends each portion of the session and when transitions occur, and apply the same discipline for other executives or advisors.
4. Go on the record to confirm privileged discussions. When counsel joins to provide legal advice, begin with a clear oral statement such as: “I would like to confirm for the record that the purpose of this portion of the session is to provide the board with privileged legal advice regarding [topic].” This creates a contemporaneous record of intent, which may be helpful in the event of litigation. Make sure that counsel announce when the privileged segment begins and ends, and excuse all nonessential parties before privileged discussions begin, so as to preserve the privilege.
5. Match documentation to the session. For general discussions, keep minimal records; the board minutes should simply note something like, “The independent directors met in executive session. No formal actions were taken.” For formal actions, document the resolution (e.g., CEO compensation decision), but not the discussion. For legal advice, have counsel personally prepare privileged legal minutes, mark them privileged, and maintain them in legal department files, not the corporate minutes book. Do not record individual director comments or create detailed transcripts that could become problematic in any future litigation.
6. Address CEO succession. Reserve executive session time at least annually for both emergency and long-term succession planning. This is a critical oversight duty. In the minutes, record that succession planning was reviewed and readiness was confirmed, as well as next steps, if any—without summarizing the discussion. If counsel is advising on employment, disclosure, or litigation risk, move that portion into a privileged segment of the session and keep privileged minutes (maintained by counsel) for that discussion.
7. Orchestrate the post-session “feedback loop.” Predictably, executive sessions can create significant anxiety for management. Designate the lead independent director (or chair) as the single voice to deliver the debrief after synthesizing the board’s feedback and framing it constructively. The lead director should deliver feedback consistently, covering general themes and any decisions or action items, but should not reveal individual director positions or comments.
8. Tailor executive sessions to committee needs. Audit committees must meet regulatory obligations for private sessions with external auditors. Compensation committees may need time with independent consultants to discuss sensitive pay matters. Nominating and governance committees address board composition, independence assessments, and director performance privately. And know when to recuse yourself: if the session addresses investigation of the entire executive team including counsel, the board needs independent outside counsel.
9. Implement technology and communication controls. As always, be particularly cautious with email—directors using employer systems may lack the privacy expectation necessary to maintain privilege. Use secure board portals for all session materials and restrict access appropriately. Establish clear protocols about destroying drafts and maintaining only official records. Remind directors that informal texts or personal emails about session topics can expand discovery and jeopardize confidentiality if there is litigation.
10. Codify the executive session process in a formal policy. Consider adopting a short executive session guideline that addresses when sessions are held, who attends which sessions, who sets the agendas, what documentation standards apply, and how feedback flows to management. This policy can serve as a training tool and help manage expectations. Keep in mind that executive session materials, while confidential, are discoverable in litigation, and so proper procedures provide essential legal protection.

The views expressed in this article are solely those of the authors and not their respective employers, firms or clients.

Nowadays, arbitration agreements are ubiquitous in the consumer finance context; some studies indicate that more than 90 percent of certain consumer contracts contain mandatory arbitration agreements. Over the years, many states and various government agencies have attempted to curtail or outright ban the use of arbitration agreements with little success. That has not stopped the California state legislature, however, which in recent years has attempted to limit arbitration in various ways.

California is back at it again with the passage of S.B. 82, which seeks to limit the scope of arbitrable claims in “consumer use agreements.” The law, which becomes effective January 1, 2026, is almost sure to be challenged in court on preemption and other grounds.

What Does S.B. 82 Do?

S.B. 82 limits arbitrable claims in consumer use agreements (broadly defined as an agreement to “use, receive, or otherwise enjoy a good, service, money, or credit”) to claims arising out of and relating to the contract containing the agreement to arbitrate. Broadly speaking, this means that a claim or dispute separate and apart from the contract (like a later injury or a tort claim that is unrelated to the original contract) is no longer arbitrable even if such a claim would fall within the arbitration agreement’s definition of a “claim” or “dispute.”

California then went further and made clear that any arbitration agreement that violates this limitation is “void and unenforceable”: any waiver of this new law contained in an arbitration agreement is deemed contrary to public policy and unenforceable. 

Supporters Say an End to “Infinite” Arbitration Clauses Is Necessary

Proponents of the bill say it is necessary to end “infinite” arbitration clauses. As Senator Thomas Umberg, the chair of the California Senate Judiciary Committee, stated, “No one should be denied their day in court because they clicked ‘I agree’ to a streaming trial or grocery app years ago. SB 82 makes sure arbitration applies only to the contracts people actually sign, not to every future dispute corporations can dream up.”

Senator Umberg also criticized so-called “infinite” arbitration clauses as producing “absurd and unfair” results, pointing to a widely publicized case in which Disney initially attempted to compel arbitration of a wrongful death lawsuit on the basis that the decedent had agreed to an arbitration clause when he signed up for a Disney+ trial account. 

An End-Around the FAA?

S.B. 82 will most likely be challenged in court on a number of grounds, including whether it is preempted by the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et. seq. The FAA was enacted by Congress nearly a century ago and was designed to overcome longstanding judicial hostility to arbitration. To that end, the FAA mandates that courts liberally construe arbitration agreements in favor of arbitration. Also, while the FAA does not include an express preemption clause, courts, including the Supreme Court, have routinely found state laws that unfairly target arbitration or treat arbitration agreements differently from other contracts are preempted by the FAA.

In fact, California is no stranger to having its laws preempted by the FAA; it has happened numerous times over the years, ranging from laws attempting to preclude arbitration agreements in the employment context to laws attempting to avoid arbitration agreements that did not permit class-wide arbitration. And while proponents of S.B. 82 claim that it only regulates the scope of arbitration and not the formation of an agreement to arbitrate, that is arguably a distinction without a difference. Indeed, the Supreme Court has previously held that the FAA “preempts any state rule discriminating on its face against arbitration—for example, a ‘law prohibit[ing] outright the arbitration of a particular type of claim.’”

Challenges to the text of the bill itself will almost assuredly follow as well.

What’s Next?

While S.B. 82’s future will most likely be decided in court, financial services companies that contract with and do business with California consumers would be well served to re-review their arbitration agreements now to address the enactment of the bill. If the bill survives judicial scrutiny, businesses will need to revise their broad arbitration agreements to account for it.

In addition, businesses would be well served to include a delegation clause in their arbitration agreements. Delegation clauses indicate who decides threshold questions of arbitrability: a court or an arbitrator? Absent such a clause, threshold questions as to arbitration, including the scope of an agreement, are for a court to decide. S.B. 82 arguably raises such threshold questions, and delegating those questions to an arbitrator may be appropriate.

Ultimately, California’s S.B. 82 represents a significant legislative shift in consumer arbitration law, targeting the overreach of so-called “infinite” arbitration clauses. If it survives potential legal challenges, it will likely reshape how businesses structure arbitration clauses and how consumers can contest them in California and elsewhere.

An Exploration of the Curious Near-Total Disappearance of “Fiduciary Out” Provisions in Private Company Sale Transactions.

Few practitioners will be surprised to learn that virtually all public company merger agreements include customary “fiduciary out” provisions.^[1] However, many might be surprised to learn that virtually no recent private company acquisition agreements include “fiduciary out” provisions,^[2] especially since the core fiduciary duties owed by the directors of public and private target companies are essentially the same.

What accounts for this stark difference? After a brief summary of the rationales for “fiduciary out” provisions, this article will:

• review why most private company acquisitions can be safely completed without fiduciary out provisions;
• discuss the limited set of circumstances when private company targets should strongly consider requesting fiduciary out provisions; and
• offer hypotheses on:
  • why so few attorneys representing private company targets have succeeded in including fiduciary out provisions in their clients’ acquisition agreements; and
  • whether the increasing use of artificial intelligence tools will revive the use of fiduciary outs in private company transactions.

I. Rationales for Fiduciary Out Provisions

The fiduciary duties of corporate directors emanate principally from centuries-old principles of agency and trust law, both of which recognize the need to safeguard the interests of persons who confer legal powers over their affairs to other persons. To protect against abuses of power, the fiduciary is charged with the duty to act in the best interest of the beneficiary.^[3]

In most cases, fiduciaries can operate free of liability if they act in good faith and with a reasonable level of care.^[4] In the corporate setting, this general deference to fiduciary decision-making has been embodied in the business judgment rule, first articulated in the United States by the Louisiana Supreme Court in the 1829 case of Percy v. Millaudon.^[5] But in Revlon v. MacAndrews and other decisions, Delaware courts have long held that sales of corporate control require a more exacting standard of judicial review.^[6] This higher level of judicial scrutiny is premised on several factors, including the “omnipresent specter that a board may be acting primarily in its own interests” and the recognition that the sale of control is a critical one-time corporate event necessitating heightened judicial vigilance.^[7]

The Delaware courts have further held that target company directors cannot contractually disclaim in an acquisition agreement their fiduciary duties regarding the target’s subsequent receipt of an improved offer. As stated in QVC, any contractual provision that purports to limit the directors’ exercise of their fiduciary duties is “invalid and unenforceable.”^[8] These cases sharply conflict with the understandable desire of the acquiror to document its right to complete its acquisition on the terms contractually agreed to by the parties, which creates a tension between the target board’s desire for deal optionality to meet the Revlon standard and the parties’ mutual contractual commitments to expeditiously close their transaction. In response to this tension, practitioners have crafted “fiduciary out” provisions that expressly permit the target to pursue alternative transactions in a narrowly defined set of circumstances. In the words of a former Delaware chancellor, these provisions provide an “escape hatch” to a target corporation that excuses nonperformance of a merger agreement in the event of a superior proposal or intervening event.^[9]

Fiduciary out provisions vary in terms of their breadth and scope, but they generally fulfill the central purposes of (i) enabling target directors to pursue the best deal available in accordance with Revlon without breaching their contractual commitments to the acquiror and (ii) allowing target stockholders to reap the benefit of any superior intervening offer. In a 2000 article, former Chancellor William T. Allen suggested an intriguing additional rationale for fiduciary out provisions. Chancellor Allen noted that judges are fallible human beings charged with broad equitable powers to scrutinize complex transactions under a standard of review that requires them to substantively review ex-post the reasonableness of the directors’ prior decisions to sell their companies. Chancellor Allen further noted that the judicial contours of directors’ duties and the “reasonableness” of their actions are not clearly marked. This creates risk that judges might “mistakenly” impose liability on directors who acted in good faith after due deliberations. Although Chancellor Allen conceded that some sales transactions can safely proceed with no fiduciary out, he warned that “there invariably is some degree of risk associated with this strategy (because courts are imperfect at distinguishing true from feigned good faith).”^[10] According to Chancellor Allen, directors seek protection from these risks, and they are key beneficiaries of fiduciary out provisions.^[11]

Other commentators have argued that stockholders are the primary beneficiaries of fiduciary outs, while yet others have noted that even acquirors can benefit from them by ensuring that acquirors will receive a contractually negotiated termination payment rather than being confronted with an unenforceable contract.^[12] Regardless, however, most commentators agree that the primary purposes of fiduciary outs are to foster value maximization in favor of target stockholders and liability minimization in favor of target directors.^[13]

II. Factors Limiting the Need for Fiduciary Outs in Private Sales

Stockholders and directors of target companies, whether publicly or privately held, generally seek to maximize transaction value and minimize legal risk. Consequently, it is reasonable to assume that practitioners representing private company targets would attempt to attain either or both of these goals through fiduciary outs. However, as noted above, in recent years practitioners have rarely been successful in obtaining such language in their agreements.

There are various reasons for the absence of fiduciary outs in private sales transactions. Several of these are obvious, many are well-reasoned, and most are interrelated. But some are less tenable than generally believed.

First, in tightly held corporations, the directors might beneficially own all of the stock. If so, there are no unaffiliated stockholders who need protection from potentially abusive or careless directors, or who could potentially benefit from alleging a breach of a fiduciary duty (absent highly unusual facts). Moreover, these individuals negotiating the transaction will invariably possess adequate information to assess the relative benefits of a fiduciary out and to make an informed and enforceable decision to forego the protections afforded thereby. A similar dynamic applies if the directors own only a portion of the stock, but have close relations with the small number of other stockholders. Here too, this group of individuals will embody all of the key beneficiaries of a fiduciary out and should possess sufficient information to knowingly agree amongst themselves to forego the related protections.

Second, stockholders in closely held corporations may be uninterested in the deal optionality promoted by fiduciary outs. Family-controlled companies may prioritize transaction speed upon the death or impending retirement of their CEO if there is no available successor or if a controlling block of stockholders demands a prompt sale to provide near-term liquidity. Undercapitalized or thinly staffed targets might also prefer a quick sale to limit transaction expenses or managerial distraction. In addition, companies backed by private equity might favor transaction speed if faced with pressures to return capital to limited partner investors. In each of these cases, the target’s stockholders would likely prioritize deal certainty over the potential benefits of a fiduciary out.^[14]

Third, private company directors may be less successful policing private company sales processes, where personal industry relationships play a significantly greater role than in public sales. Unlike public company directors, directors of many closely-held corporations may be family members or long-standing friends or associates of the company’s founder or CEO. These directors may be less inclined to resist the plan of such founder or CEO to sell the company to a predetermined acquiror quickly without the benefit of a fiduciary out. These directors may also lack sufficient transaction acumen to hire experienced advisors or resist the advice of financial advisors to accept the first acceptable offer.^[15] This dynamic should, of course, raise concerns for any attorney representing a private target, because any suggestion that the sales process was unduly cloistered will substantially increase the risk of a court subsequently questioning the reasonableness of the directors’ decision-making.

Fourth, the risk of a private company or its directors being sued based on an alleged breach of fiduciary duties in connection with a sales transaction will almost always be lower than the comparable risk faced by a public company and its directors. There are many reasons for this. Most significantly, private companies will, in nearly all cases, have far fewer stockholders than public companies, and therefore fewer potential litigants. Plus, in closely-knit private companies, passive stockholders may be less inclined to sue the company’s board. In addition, private companies frequently have lower valuations, which reduces the size of potential recoveries for litigants seeking damages. Finally, unlike public companies, private companies are generally not legally obligated to announce their entry into a sales agreement. This lack of public disclosure significantly maximizes the likelihood that the transaction can be closed without a competing bid, which in turn reduces the likelihood of an ensuing judicial inquiry into the reasonableness of the directors’ actions. This diminished risk profile is likely a key factor in target corporations foregoing fiduciary outs when confronted with an acquiror’s vehement objection to including this feature in the acquisition agreement.

But diminished risk is not the same as no risk. In certain circumstances, the risk may not be sufficiently reduced to warrant foregoing a fiduciary out. If, for instance, management of a highly valuable target with a disparate group of stockholders agrees to sell without an adequate sales process, foregoing a fiduciary out could entail significant risk, especially if intra-family animosities increase the risk of judicial challenges.

Fifth, many private companies rely on Optima^[16] and its progeny to promptly secure stockholder approval of private company sales, often within twenty-four hours, by written consent. In Optima, the Delaware Chancery Court refused to enjoin a merger agreement approved by the target’s stockholders within twenty-four hours of the board’s approval thereof, notwithstanding the subsequent emergence of a higher offer. The court found that the target company’s board had satisfied Revlon by conducting a thorough process, and it further noted that “[n]othing in the [Delaware General Corporation Law] requires a particular period of time between a board’s authorization of a merger agreement and the necessary stockholder vote.”^[17] Accordingly, under the right set of circumstances, a target can quickly secure stockholder consent to a sale and rely on Optima and subsequent cases to conclude that a fiduciary out is unnecessary.^[18]

There are important constraints, however, on use of a rapid stockholder consent process. It may be impractical, or invite a hostile stockholder reaction, to expect stockholders to consent to a sales transaction this quickly, especially if the terms are complex or management has conflicting interests. A rushed approval process could cause directors to furnish a faulty stockholder information package that violates their duty of candor,^[19] or could result in an ill-informed stockholder approval that is subsequently voided by a court on the basis of inequitable process or inadequate disclosure.^[20] Moreover, prior to closing, stockholders who fail to consent (and potentially stockholders who do consent) will still be free to allege that the directors’ process failed to meet the Revlon standard. Because many private transactions require a substantial amount of time to obtain governmental or third-party consents, it is quite possible that leaked news of a pending sale will enable third parties to offer competing bids before the sale can be closed, thereby inviting legal challenges. In short, Optima should not be viewed as an all-encompassing panacea that absolves a target company from considering the merits of requesting a fiduciary out.^[21]

III. When Should Private Company Targets Request a Fiduciary Out?

Chancellor Allen’s warning cited in Section I above about judicial fallibility, coupled with the discussion above in Section II, suggest various scenarios where privately held target companies should be wary of proceeding without a fiduciary out. These include:

• sales by private companies with large stockholder bases, especially if (i) a block of stockholders is hostile to the management team, (ii) confidentiality concerns preclude management from canvassing the company’s stockholders to gauge their support prior to signing the acquisition agreement, or (iii) the transaction is large enough to entice interest from the plaintiffs’ bar;
• transactions approved solely or predominantly by non-independent directors, which are apt to draw more judicial scrutiny than transactions approved by independent directors;
• a sales process not reasonably designed to identify the most likely prospective bidders;
• transactions that suggest that management was unduly motivated by the desire to sell quickly or to a pre-determined acquiror at the expense of a careful review of all options; and
• transactions involving conflicts of interest, complex terms, or other features precluding rapid stockholder approval, which thereby create a window for competing bids and stockholder suits to emerge.

IV. Why Have Fiduciary Outs Virtually Disappeared from Private Sale Transactions, and Will Artificial Intelligence Tools Impact This Trend?

Without an exhaustive search of the specific circumstances governing each of the private company sales reflected in recent survey data, it is difficult to speculate with certainty why nearly all private target companies are currently foregoing fiduciary out protections. It is possible that most of the private companies reflected in the data are closely-held, tightly knit companies that believe they can forego fiduciary out protection at minimal risk. But this seems questionable because the number of complex, widely-held target private companies (often with hundreds of stockholders) is growing, not contracting. It is also possible that practitioners have concluded that the Delaware courts have lost their zeal for policing the reasonableness of sales processes under Revlon. But this would conflict with the near universal use of fiduciary outs in public company transactions.

A more likely explanation is that acquirors are using survey data to argue that fiduciary outs are “off-market” in private company sales, and that it is therefore patently unreasonable for any target company to request including one in a sales agreement. If, over time, this argument continuously prevails, the number of private company sales with fiduciary outs would be expected to continuously ratchet down.^[22]

Over the past couple of decades, survey data has, on balance, had a profoundly positive impact on dealmaking by allowing practitioners to more quickly resolve differences of views on negotiated terms, thereby freeing them to focus on more mission-critical tasks. But survey data can also become a crutch that forestalls substantive debate on when an “off-market” provision is justified in a sales agreement.

The manner in which artificial intelligence (“AI”) platforms are trained could have a significant impact on whether fiduciary outs in private company acquisitions remain rare or experience a resurgence. If AI platforms are trained to focus narrowly on the most prevalent terms used in recent deals, their use would likely reinforce the current trend towards the near-disappearance of fiduciary outs in private company acquisition agreements. Conversely, AI platforms trained to focus broadly on the full range of deal terms used in an expansive set of acquisition agreements could have the opposite effect by prompting sellers’ counsel to assess the potential benefits of including fiduciary outs in their private company sale transactions. If so, it would be quite ironic if AI helped to reinvigorate the open-minded debate over fiduciary outs that survey data has apparently squelched in recent years.

V. Conclusion

The discussion above clearly indicates that most private company sale transactions can be safely pursued with no fiduciary out provisions. But this discussion also suggests that, in certain limited instances, a private company target should vigorously seek the protections afforded by fiduciary outs. In these circumstances, counsel for the target should aggressively pursue the best interests of their client, and resist any attempt by the purchaser’s counsel to use survey data as a blunt weapon to preclude an objective debate over the reasonableness of the target’s position.

1. See generally deal points survey data published by the Mergers & Acquisitions Committee of the American Bar Association Business Law Section. ↑

2. According to survey data on private-target M&A transactions published in 2024 and 2025 by SRS Acquiom Inc., 0 percent and 2 percent of private company sales included fiduciary outs in 2023 and 2024, respectively. Prior SRS Acquiom survey data reflects a slightly higher incidence of these provisions in prior years, whereas a deal points study published in 2023 by the Mergers & Acquisitions Committee of the American Bar Association Business Law Section notes that 17 percent of private company sales in 2008 included fiduciary outs, with the number falling steadily thereafter. ↑

3. Julian Velasco, Fiduciary Duties and Fiduciary Outs, 21 Geo. Mason L. Rev. 157, 159–160 (2013). ↑

4. Deborah A. DeMott, The Oxford Handbook of Fiduciary Law (2017), citing Restatement (Third) of Agency (A.L.I. 2006). ↑

5. Percy v. Millaudon, 8 Mart. (N.S.) 68, 78 (La. 1829); see also Gerald V. Mantese & Emily S. Fields, The Business Judgment Rule, 99 Mich. Bar J. 30 (Jan. 2020). ↑

6. This article focuses on Delaware law, which has strongly influenced the jurisprudence of other states. ↑

7. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180 (Del. 1986) (quoting Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985)). See also J. Travis Laster, Revlon Is a Standard of Review: Why It’s True and What It Means, 19 Fordham J. Corp. & Fin. L. 1, 5 (2013) (citing multiple cases cataloguing the financial and nonfinancial conflicts of interest raised by sales of corporate control). ↑

8. Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 51 (Del. 1993) (“QVC”). ↑

9. William T. Allen, Understanding Fiduciary Outs: The What and the Why of an Anomalous Concept, 55 Bus. Law 653, 653 (February 2000). A target company can also seek a different exemption from its contractual commitments to the acquiror in the form of a “go-shop” provision, whereby the acquiror expressly permits the target to seek competing offers. This article, however, focuses solely on fiduciary outs. ↑

10. Id. at 656–658. Similarly, in Ace Ltd. v. Capital Re Corp., 747 A.2d 95, 107 (Del. Ch. 1999), Vice Chancellor Leo E. Strine Jr. suggested there were some “limited circumstances” where a board may proceed without a fiduciary out, but he further noted that the absence of a fiduciary out would be “less justifiable” in most change of control transactions requiring a stockholder vote. ↑

11. Allen, supra note 9, at 657. ↑

12. Velasco, supra note 3, at 171–175; see also Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 4.04 (2025 ed.). ↑

13. See generally Allen, supra note 9, and Velasco, supra note 3. See also Robert B. Little, Travis S. Souza, & Rachel F. Harrison, “No-Shops & Fiduciary Outs: A Survey of 2012 Public Merger Agreements,” Gibson, Dunn & Crutcher (2013). ↑

14. Granted, similar pressures could potentially arise in public corporations, but this dynamic is far more common in private corporations. ↑

15. Typically, financial advisors are structurally incentivized to close a large number of briskly paced transactions at acceptable prices rather than a materially smaller number of slower-paced transactions at the maximum available price. ↑

16. Transcript of Oral Argument on Plaintiff’s Motion for Preliminary Injunction and Ruling of the Court, Optima International of Miami, Inc. v. WCI Steel, Inc., No. 3833 (Del. Ch. June 27, 2008) (ruling from the bench). ↑

17. Id. at 127. ↑

18. Practitioners typically assume that Revlon’s enhanced standard of review is inapplicable to a post-closing damages action challenging a transaction not subject to the entire fairness standard if the transaction has been approved by a fully informed, uncoerced vote of the stockholders, citing Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015) and multiple subsequent cases citing Corwin. ↑

19. Delaware courts have required directors to fully and fairly disclose material information to stockholders when soliciting their approval, including a duty to provide “accurate, full, and fair” disclosure once the board elects to speak. Arnold v. Society for Savings Bancorp, Inc. 650 A.2d 1270, 1280 (Del. 1994). See also William M. Lafferty, Lisa A. Schmidt, & Donald J. Wolfe Jr., A Brief Introduction to the Fiduciary Duties of Directors Under Delaware Law, 116 Penn St. L. Rev. 837, 848–849 (2012). ↑

20. In recent years, the Delaware courts have been fairly aggressive in disregarding flawed stockholder approvals. See Morrison v. Berry, 191 A.3d 268, 282–284 (Del. 2018); Jenness E. Parker & Amanda L. Day, “Mind Your Disclosures: Delaware Courts Are Asking Just When a Stockholder Vote Is ‘Fully Informed,’” Skadden (Spring 2024). ↑

21. For a critique of the Optima decision, see Guy Firer & Adi Libson, Out with Fiduciary Out?, 49 Iowa J. of Corp. L. 138, 33–35 (2023). See also Alexander B. Johnson & Roberto Zapata, Optima Is Optional: Sidestepping Omnicare in Private Company M&A Transactions, Deal Points (Committee on Mergers and Acquisitions, ABA Business Law Section) (Summer 2009). ↑

22. See the historical data presented above in note 2, which suggests that the incidence of fiduciary outs in private sales agreements over the past twenty years has in fact gradually decreased from being infrequent to nearly nonexistent. ↑

I regularly advise clients on employee separations, and often, clients inquire whether it would be better to style a performance-based separation as a “reorganization.” The answer is almost always no. Quite simply, semantics do not insulate employers from wrongful termination claims. This article addresses best practices for employers with respect to position eliminations and reductions in force (“RIFs”), with a focus on nonprofits.

Most nonprofit employees are at-will employees, meaning that they can be terminated for any reason or no reason, except an unlawful reason. The employer must be able to prove that a legitimate business reason prompted the termination. A position elimination or a RIF prompted by a strategic reorganization is a legitimate business reason for an employee termination.

Simple, right? Well, not exactly. Assume that you eliminate a position due to a strategic reorganization. An aggrieved employee may argue that the position elimination was a pretext for an unlawful motive. The nonprofit organization must be able to prove otherwise. But how? The following practical advice sets forth best practices for structuring lawful position eliminations and reorganizations.

1. Identify the Triggering Event.

A position elimination or reorganization is a strategic undertaking that should be orchestrated with great thought and memorialized in written business records. A range of events may trigger a reorganization. Perhaps the organization is facing some sort of financial exigency. Perhaps a consultant identified redundancies or gaps in organizational structure. Perhaps a recently appointed executive director desires to pursue a new vision and, in so doing, de-emphasizes old priorities. Whatever the underlying motive for the position elimination or reorganization, it should be documented at the outset of restructuring efforts in an internal memorandum or emails among senior leadership.

2. Identify Relevant Policies and Contracts.

While it is most common for nonprofit organizations to execute written contracts only with the CEO or executive director, sometimes, nonprofits execute written employment agreements with other senior-level executives as well. Employment contracts may influence how an employer carries out a position elimination or reorganization. You must read contractual terms carefully, in consultation with counsel, if a potential reorganization implicates an employee with an employment contract. Similarly, an employee handbook may guarantee employees certain procedural protections in connection with position eliminations or reorganizations. As is the case with all policies, you must follow your policies to a tee.

3. Consider Alternatives.

Especially when a reorganization is driven by financial strain, leadership may want to evaluate alternative options. Might a furlough allow the employer to recover enough costs to continue standard operations during a financial downturn? Might salary reductions (if federal and state law allow them) save enough money to carry the organization through the end of the fiscal year without eliminating any positions? Might voluntary sabbaticals, voluntary leaves of absence, or voluntary separations allow for cost savings? Would a hiring freeze allow unrestricted funds to be reallocated? Is it possible to freeze staff overtime to recapture enough funds to continue operations without interruption? It may be that the only sound business decision is to eliminate a position, but alternatives should be considered if they exist.

4. Establish and Document Objective Selection Criteria.

Once you have determined that a reorganization is necessary (whether it ultimately impacts one position or more), establish and document lawful and objective selection criteria, consistent with the business needs of the organization. Objectivity is key: The most defensible criteria are objective criteria. A nonexhaustive list of objective selection criteria includes but is not limited to:

• Elimination of grant that previously funded the equivalent of one or more full-time employees
• Organizational redundancies that could be consolidated more efficiently
• Outsourcing certain responsibilities to contractors for financial cost savings
• Program discontinuation
• Length of service to the organization
• Job classification

This is just a sampling. While it is not unlawful to consider job performance as a component of a lawful RIF, it does open the door to arguments about pretext, so proceed with caution.

Once you have identified objective selection criteria, memorialize the criteria in writing in a business record. This could be through a memorandum or an email. Most optimally, have a separate decision-maker approve the recommendations. For example, the chief operating officer or human resources director could present the objective criteria as recommendations to the executive director in an internal, confidential memorandum, with the executive director approving the objective plan. Though not required as a matter of law, this kind of arrangement best shields the organization from individual employee claims that the position elimination or restructuring was a pretext for intentional discrimination targeting a single individual.

5. Conduct a Case-by-Case Analysis.

No employee termination is without risk. In consultation with counsel, conduct a case-by-case risk analysis looking at each impacted employee. Did any of the impacted employees recently blow the whistle on alleged fraudulent activity? Take protected leave to care for themselves or a family member? Report discrimination or harassment? Participate in an internal investigation? Disclose a disability or request a disability accommodation? These are protected activities, and while none of these facts preclude you from proceeding with a position elimination or a reorganization, they do impact the risk of doing so, especially when the protected activity occurs in close proximity to the adverse action (position elimination). The risk calculus may inform whether to offer severance pay (in exchange for a release of all claims) and how the organization structures severance packages.

6. Conduct a Disparate Impact Analysis.

You should also analyze the impact of the reorganization on employee diversity, again in consultation with counsel. Imagine that you employ ten full-time employees. You must eliminate five positions. As it turns out, all five of the separated employees are over age sixty, and all five of the retained employees are under age thirty-five. The optics of this outcome are not ideal and again impact the risk calculus. In this circumstance, you will want to make sure that biases did not infect the process in any way, such that a separated employee could reasonably suspect that age discrimination played a role in the decision. As with the case-by-case analysis, the disparate impact analysis may also inform whether to offer and how to structure severance packages.

7. Consider Severance Packages.

Reorganizations usually are not based on performance. Almost always, they take place at no fault of the separated employee or employees. When equipped with the financial resources to do so, nonprofit organizations typically offer severance packages to separated employees in exchange for a full release of all claims. Nonprofit leaders sometimes want to offer transition services (usually at a de minimis cost to the employer) as part of severance packages to help separated employees obtain new employment. Where an employee separation results from a position elimination as opposed to performance concerns, severance packages often guarantee a positive or mutually agreed-upon job reference. The terms of any severance package are negotiable, although again, it will be important to cross-check internal policies, as some employee handbooks specify a minimum amount of severance for position eliminations.

Conclusion

Getting back to the original question—would it be better to call it a reorg? At the end of the day, semantics are meaningless unless you can show your work. Only then can you overcome a claim that the legitimate business reasons underlying the decision to eliminate a position are not a pretext for an unlawful motive.

For more information, please contact the author at [email protected].

A German attorney, a New York attorney, and a Canadian attorney walk into a bar and stay until last call. Despite the mental lubrication of the bar’s finest offerings, they only agree that they all disagree on what the word “knowledge” means and what a “legal opinion” is. Such is the murky world of cross-border legal opinion practice.

In an effort to bring clarity, an esteemed “who’s who” of experts in the world of legal opinions convened in Toronto in September 2025 for a sober yet animated panel discussion on the underlying work required to support a firm’s legal opinion, and—with the help of Canadian counsel—a comparative United States / Canada cross-border analysis on the same subject. The discussion examined the best practices, including what qualifies as “customary diligence,” the universe of authoritative literature, and how firms teach their teams the skills and knowledge to properly form and issue opinions.

The panel was moderated by Christina M. Houston, partner at DLA Piper (Wilmington, Delaware), and featured Arthur A. Cohen, partner at Haynes and Boone, LLP (Houston, D.C., and NYC); Aaron S. Emes, partner at Torys LLP (Toronto); Timothy G. Hoxie, of counsel at Jones Day (San Francisco); Ettore A. Santucci, partner at Goodwin Procter LLP (Boston); and Steven O. Weise, partner at Proskauer Rose LLP (Los Angeles). Karina S. Oshunkentan, counsel at Haynes and Boone, LLP (Washington, D.C.), was the materials coordinator. The program was sponsored by the firm of Young Conaway Stargatt & Taylor, LLP (Wilmington, Delaware) (where this author is an attorney).

Customary Practice in Opinion Giving

The concept of “customary practice” provides both a safeguard and a responsibility for attorneys. Weise informed the audience that “the various restatements of torts and of the law governing lawyers have said that in testing whether you were negligent or not, an important component is customary practice and customary diligence.” Therefore, the stakes are high. Weise continued, “Understanding what customary practice requires and what it means, and what you should do, is going to be critical if you ever have to defend a lawsuit on an opinion letter.”

In discussion, Weise and Cohen explained that a lawsuit could be based on the tort of misrepresentation, but that a legal opinion recipient can only sue on the grounds of something it would have been reasonable to rely upon. Weise stated that “the recipient expects, reasonably, that you are going to follow customary practice,” and the recipient cannot “reasonably expect more than what customary practice might call for.” Cohen humorously summarized, “They can’t. [Because i]t’s not reasonable.” According to Hoxie, an “opinion recipient is entitled to expect the giver has acted within customary diligence, [and . . . an] opinion giver is entitled to expect the recipient is to be aware of customary practice.”

Because each transaction is unique, Cohen explained that what an opinion author needs to do “is a function of your professional practice as modified by customary practice.” If you diverge from customary practice, it should be disclosed through a carve-out or assumption. So how does an attorney know if they have met the bar of customary practice?

Opinions Determine the Diligence

Hoxie advised opinion givers to ask themselves, “What opinion am I giving, and what is required to support that opinion?” The set of opinions being given informs the customary diligence required to back those opinions; and customary diligence is comprised of factual diligence and legal diligence. Diligence requires understanding what facts are needed to reach a conclusion, and how to determine those facts. Through those specific and established facts, opinion givers apply the law.

Factual diligence is an important focus because while the facts vary, the law usually does not. Hoxie observed therefore that “usually, if there is a problem, it is a factual issue and not a problem of understanding the law.” But opinion givers should be aware that endless diligence is not a workable solution to uncertainty. According to Weiss, “Customary diligence is a floor, but it is also a ceiling.” He further explained, “Customary diligence also has a cost-benefit analysis: What does it make sense to do in a deal? Is it cost effective for the transaction?” When push comes to shove on feasible diligence, Hoxie and Cohen agreed that divergence from customary diligence is okay if it is clearly disclosed and the parties relying upon the opinions understand what has been done.

Reports prepared by the TriBar Opinion Committee (“TriBar”) provide significant guidance for opinion givers, including what various opinions mean and what is needed to produce them. But each circumstance, transaction, and governance scheme creates a case-by-case determination for what is necessary and customary. The TriBar Reports and a trove of other opinion resources are available online at the Legal Opinions Resource Center, which Hoxie called “the best one-stop compendium of all of this literature.” These publications and reports study and document what becomes considered customary practice and customary diligence. State and local bar associations also often have publications, which might be most relevant to opinions in particular fields.

Cross-Border Comparisons

“Local customs and practice matter a great deal,” according to Santucci. Santucci stated that it is a “bedrock principle” that “U.S. lawyers giving third-party legal opinions in cross-border transactions rely on the same customary practice on which they rely when they give domestic opinions.” However, those practices cannot be applied to contracts governed by non-U.S. laws.

The discussion revealed that customary practice is far less consistent across national borders than state borders. Santucci provided a few examples of varying global practice. In London, “legal opinions are part of client advice, and not a legal opinion at all.” In Germany, “an opinion is a lawyer’s reasoned analysis of applicable law, often coming to no conclusion at all.”

Perhaps given their proximity, U.S. and Canadian legal opinions are more alike. It is understood that the laws covered in a U.S. or Canadian legal opinion—and therefore the analysis provided—are only the laws of the jurisdiction covered (if stated), and only the laws an experienced lawyer in the relevant jurisdiction would think are applicable and appropriate. In the United States and in Canada, tax, securities, and antitrust laws are customarily understood to be excluded unless expressly covered.

Emes detailed further similarities between Canada and U.S. legal opinions:

• Choice of law opinions are given in Canada, subject to public policy exception, the same as in the United States.
• Enforcement of foreign judgements opinions are based on common law, but Canada does not require reciprocity for enforceability.
• Enforcement of foreign arbitral award opinions are almost identical to those given in the United States.

Emes also noted some differences between Canadian and U.S. practice, including the following:

• Unlike in U.S. practice, Canadian practice will provide underwriting agreement enforceability opinions, but they include indemnity carve-outs because of the possibility of a court taking a public policy position on indemnity.
• Intellectual property opinions are not common in Canadian practice, so U.S. practice is influential in those opinions.
• Negative assurance letters are not given in domestic opinions, but they can be given in cross-border opinions with a disclaimer regarding the meaning of “material facts” (which relates to “knowledge”).
• Good standing opinions are not given; the relevant Canadian authorities provide certificates of corporate status, which only state that an entity is not dissolved.

Given the complexity of cross-border opinions, Santucci recommended a foolproof methodology for cross-border practitioners: “Start every cross-border opinion not with a form of opinion, but with a chart: Who is doing what to whom, where, and—ideally—why and how. And then annotate that chart with choice of law and forum selection.” The 2023 publication “Good Practice in Cross-Border Legal Opinion Practice” is also recommended as an excellent resource.

Conclusion

When preparing a legal opinion letter, an author should identify the facts required to come to a sound legal conclusion. The legal standards relevant to that law define the relevant facts, and customary practice and the contours of the transaction itself define the customary diligence.

Learning the facts and the law are often easier than learning customary practice. But learning customary practice is essential for competency in the practice of opinion giving. Therefore, maintaining knowledge of customary practice is a communal project of conferring with colleagues directly and through legal publications.

Just as languages—and accents within the same language—vary as the globe rotates, customs vary as well, including the customs underpinning legal opinions. To avoid any misunderstandings, cross-border opinion givers should use extra care when entering murky international waters.

Thankfully, we are not in the “age of discovery” with opinion practice, and there are many experts and resources to rely upon both for domestic and cross-border opinion giving.

This article reports on a CLE program titled “What Work Do You Need to Do to Support a Legal Opinion? A Cross-Border Perspective,” which was presented during the ABA Business Law Section’s 2025 Fall Meeting. To learn more about this topic, view the program as on-demand CLE, free for Business Law Section members.