Corporate Transparency Act: Is compliance still required?

As discussed in our article, “The Corporate Transparency Act: Impending effect”, Congress passed the Corporate Transparency Act (“CTA”) in 2021 as a legislative initiative to combat money laundering and other criminal enterprises being operated through business entities. Effective January 1, 2024, the CTA requires most entities to report their individual beneficial ownership information with the Financial Crimes Enforcement Network of the US Department of Treasury (“FinCEN”).

Shortly after the CFA went into effect, a federal court heard the first challenge to the statute. In National Small Business United v. Yellon, No. 5:22-cv-01448 (N.D. Ala.), the National Small Business Association (“NSBA”), an association representing approximately 65,000 businesses, and one of its members brought suit in the US District Court of the Northern District of Alabama challenging the CTA. On March 1, 2024, the District Court ruled for the plaintiffs and found that the CTA is unconstitutional as it “exceeds the Constitution’s limits on the legislative branch.” Resulting from this finding, the District Court issued an injunction against enforcement of the CTA that only applies to the plaintiffs, including the NSBA.

Following this ruling, the Justice Department filed a Notice of Appeal on March 11, 2024. As of the date of this writing, the appeal remains ongoing.

What’s Next For the CTA?

Following this ruling, FinCEN published a statement acknowledging that it will comply with the ruling for as long as the injunction remains in effect, and it will not enforce the CTA against the plaintiffs in this action. It did note, however, that it “will continue to implement the [CTA] as required by Congress, while complying with the court’s order. Other than the particular individuals and entities subject to the court’s injunction…reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”

Interpreting this statement, reporting companies are still required under the CTA to register and comply including:

  • New non-exempt entities formed or registered on or after January 1, 2024 should plan to comply with the CTA within 90-days of formation
  • Existing non-exempt entities formed or registered before January 1, 2024 should continue to plan for CTA-compliance by December 31, 2024.

 It is important to note that this suit was only a challenge to Congress’ ability to enact the CTA. It does not impact similar state laws that are structurally similar to the CTA.

For additional information on the CTA, please see Kennedys’ publication: The Corporate Transparency Act: Impending effect

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