The Corporate Transparency Act (CTA), created and implemented by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), became effective January 1, 2024. The CTA aims to enhance corporate transparency in an effort to prevent and combat illicit financial activities, such as money laundering and tax evasion, discouraging the use of shell corporations as a tool to disguise and move illicit funds. The CTA implements reporting requirements for limited liability companies (LLCs), corporations, and other business entities that have never had to report such information previously, with harsh penalties for non-compliance.
From inception, the CTA sparked debate and controversy across the country, as evidenced by the hundreds of conflicting comments submitted during the preliminary drafting and review phase among business owners, lawyers, CPAs, and other professional groups, many claiming the CTA was too invasive, unmanageable, difficult to enforce, and, ultimately, ineffectual.
In National Small Business United v. Janet Yellen, a Northern District of Alabama Federal Judge ruled on March 1, 2024, that the CTA was unconstitutional. Citing privacy concerns, and a myriad of legal reasoning and precedent around the scope of Congress’s power, the Court concluded:
“The CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals…the Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.”
The decision – already the subject of debate and differing interpretations as to its practical impact on the CTA – has created uncertainty around its legitimacy and enforceability. The ruling is certain to be addressed by appeals courts in the coming months. While the exact implications for continued compliance with this mandatory reporting regime for those not party to the litigation is currently unclear, it would certainly seem prudent and advisable to consult with legal counsel and continue to gather required information and properly file pursuant to CTA requirements, while awaiting guidance from the Appeals Court and the Treasury, particularly for entities formed in 2024, which have 90 days to comply with the CTA.
For a more detailed discussion about the CTA, its requirements, and penalties for non-compliance, click here. You can also view a presentation about the CTA, as part of Bridgeford’s widely viewed and well received livestream, “Preserving Privacy and Asset Protection in a Transparent World”.
As we continue to see this ruling unfold, we will keep you updated on the latest details and analysis. Should you have any questions in the meantime on the CTA or need further assistance, please reach out to us via our contact page or by calling (605) 224-9189.
