Defense Secretary James Mattis has made his recommendation to the White House on how the Department of Defense should handle the military service of transgender individuals, Pentagon spokesman Maj. Dave Eastburn confirmed to ABC News.
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The final policy announcement is expected to be made by President Trump in late March.
Trump tweeted last July that he wanted to ban all transgender service members, saying the military "must be focused on decisive and overwhelming victory."
The move reversed the 2016 Obama administration directive that allowed those individuals to serve openly for the first time.
The August memo directed the Pentagon to develop an implementation plan. Mattis then tasked a panel of experts to study the issue and inform his recommendation to the president, who will make the final policy decision.
It is scheduled to go into effect on March 23.
Since Trump's tweets, federal courts have rejected portions of the proposed ban. Most notably, beginning Jan. 1, the Pentagon complied with a court order that allowed transgender individuals to join the military if they met strict criteria, including certifications from a medical provider about the status of their health.
What do we know about transgender service members?
Last year, defense officials estimated there were about 200 transgender individuals in the U.S. military who had self-reported to their services a desire for some form of medical treatment related to their gender identity.
However, the actual number of transgender service members is still unknown, primarily because military personnel records do not currently track transgender individuals.
A 2016 Rand study, which was referenced by former Defense Secretary Ash Carter, estimated that 2,450 active duty service members might be transgender, with 1,510 in reserve units.
The same Rand study said the "little research" on transgender service members showed "little or no impact on unit cohesion, operational effectiveness, or readiness."
"Commanders noted that the policies had benefits for all service members by creating a more inclusive and diverse force," the study said.
At the time of the study, 18 countries, including the United Kingdom, Israel, Canada, and Australia, allowed transgender personnel to serve openly.