Medical practices across the United States are grappling with new compliance obligations under the Corporate Transparency Act (CTA). This article addresses the CTA’s applicability to medical practices, its current legal status, and what physicians should do to prepare for compliance.
Understanding the Corporate Transparency Act
The CTA, enacted as part of the Federal Anti-Money Laundering Act of 2020, established new reporting requirements for businesses operating in the United States. The CTA applies to all organizations operating in the United States, including medical and other professional practices, unless excluded by definition or by an exemption. The CTA’s implementing regulations became effective on January 1, 2024 and require most entities formed or registered to do business in the United States (called “Reporting Companies”) to file reports regarding beneficial ownership information (called “BOI Reports”) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
Key Definitions and Requirements
Subject to judicial and legislative developments (see below), Reporting Companies must file BOI Reports disclosing information regarding (1) the Reporting Company itself, (2) the Reporting Company’s “Beneficial Owners,” and (3) for entities created after January 1, 2024, the person(s) involved in the formation of the Reporting Company (called “Company Applicants”).
The term “Beneficial Owner” encompasses any individual who either (1) exercises “substantial control” over the Reporting Company, or (2) owns or controls at least 25% of the ownership interests of the Reporting Company. An individual is considered to exercise “substantial control” over the Reporting Company if the individual serves as a senior officer of the Reporting Company (such as President, CFO, CEO), has authority over the appointment or removal of a majority of the board of directors or senior officer, or is otherwise considered an important decision-maker within the Reporting Company.
Applicability to Medical Practices
Most medical practices within the United States will qualify as Reporting Companies unless they meet at least one of the 23 exemptions under the CTA. The most relevant exemption for medical practices is the “Large Operating Company Exemption,” which applies if the practice:
- Employs more than 20 full time employees in the United States as of the date the BOI Report is filed;
- Has an operating presence at a physical office within the United States as of the date the BOI Report is filed; and
- Filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.
For medical practices that do not qualify for an exemption, Beneficial Owners typically include physician shareholders, partners, or professional limited liability company members and managers. Medical practices that do not have a single individual with more than a 25% ownership interest will need to pay particularly close attention to which individuals have “substantial control” over the practice.
Current Legal Status and Enforcement
The implementation of the CTA has faced significant legal challenges that have impacted compliance and enforcement. The CTA requires that Reporting Companies formed before January 1, 2024 were required to file a BOI Report by January 1, 2025. Reporting Companies formed between January 1, 2024 and January 1, 2025 had a 90-day window to file, while Reporting Companies formed after January 1, 2025 had 30 days to file their BOI Reports. However, ongoing litigation has temporarily paused compliance with these requirements.
In Texas Top Cop Shop, Incorporated et al. v. McHenry (formerly Garland), Case No. 4:24-cv-00478, the plaintiffs are challenging the constitutionality of the CTA, arguing that Congress exceeded its authority in enacting the law. The U.S. District Court for the Eastern District of Texas initially issued a preliminary injunction blocking enforcement of the CTA nationwide while the parties’ pursued an expedited appeal in the Fifth Circuit Court of Appeals. However, the U.S. Supreme Court has recently stayed the injunction, which means that the District Court’s preliminary injunction in this lawsuit no longer prohibits enforcement of the CTA. The lawsuit is ongoing and it remains to be determined whether the Fifth Circuit Court of Appeals will find the CTA to be unconstitutional.
In the meantime, however, a different federal judge in the U.S. District Court for the Eastern District of Texas in Samantha Smith et al. v. United States Department of the Treasury et al. (EDTX 6:24-cv-336), issued an order enjoining the federal government from enforcing the CTA against the plaintiffs and staying FinCEN’s regulations implementing the CTA’s reporting requirements nationwide. The U.S. Department of Justice appealed this decision and filed a motion to stay the injunction, citing the U.S. Supreme Court’s decision in Texas Top Cop Shop. In the meantime, FinCEN has stated on its website that while this injunction is in effect, Reporting Companies are not legally obligated to comply with the CTA’s reporting requirements, but may voluntarily do so. If the injunction is lifted, FinCEN has stated on its website that it will extend the reporting deadline for Reporting Companies by 30 days from the date a stay is granted and will consider modifications to the reporting requirements.
Separate from these judicial actions, legislation has been introduced to modify the CTA’s compliance deadlines. On February 11, 2025, the U.S. House of Representatives passed HR 736, titled the “Protect Small Businesses from Excessive Paperwork Act,” which would extend the CTA filing deadline for pre-existing Reporting Companies (formed prior to January 1, 2024) to January 1, 2026. The bill is currently under Senate committee review. This legislation will not become law unless approved by the Senate and signed by the President.
Recommended Actions for Medical Practices
While mandatory reporting is paused due to the Smith court’s injunction, FinCEN has indicated that it will continue to accept submissions of BOI Reports on a voluntary basis. In the meantime, medical practices should be proactive and take the following steps to prepare for eventual compliance:
- Review ownership structure and governance to identify potential Beneficial Owners.
- Gather required information for potential Beneficial Owners, including full legal names, dates of birth, current residential addresses, and copies of their driver’s licenses or passports.
- Consider consulting with legal counsel to determine exemption eligibility.
- Monitor legal developments and be prepared to file timely with FinCEN if the injunction is lifted.
Organizations subject to the CTA, including medical practices, should be aware that failure to comply with the CTA’s reporting requirements can result in significant penalties, such as civil penalties of up to $606 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
