On October 27, a coalition of 20 states and the District of Columbia sued Treasury, FinCEN and four federal officials in the U.S. District Court for the District of Oregon, challenging FinCEN’s rules exempting domestic companies and U.S. persons from beneficial ownership reporting under the Corporate Transparency Act (CTA). It targets both the March 2025 interim final rule and the August 2026 final rule (previously covered by InfoBytes here), which exempt all U.S.-formed entities from reporting and allow foreign companies reporting under CTA to omit U.S. persons. Citing FinCEN’s own estimates, the states allege the exemptions remove more than 99.9 percent of covered entities, leaving roughly 28,000 existing foreign companies required to report, compared with an original estimate of more than 32.5 million. The states also challenge the final rule’s plan to delete previously reported data on newly exempt entities in a single “sweep,” which they expect will occur on or before February 10, 2027.

The states contend that the “executive branch cannot repeal a law by rulemaking.” They allege the rules violate the APA by exceeding the secretary of the Treasury’s authority, which permits new exemptions only where reporting “would not serve the public interest” and “would not be highly useful” to national security, intelligence and law enforcement efforts, a standard the states say cannot justify exempting nearly every covered company. The states further allege that: (i) the deletion plan violates the statute’s requirement to retain reported information for at least five years after a company terminates; (ii) the rules are arbitrary and capricious because they rely on small-business burdens Congress already weighed and departed from FinCEN’s 2022 findings without adequate explanation; (iii) the attorney general’s and Homeland Security secretary’s written concurrences in the exemptions were arbitrary and capricious; and (iv) the deletion plan violates the separation of powers and the Take Care Clause. The states cite their interest in using the data for law enforcement, tax collection, and supervision of financial institutions’ customer due diligence compliance, and allege FinCEN has not yet given states access to the database. The states seek vacatur of both rules and the written concurrences, and an order blocking the data deletion.