The Corporate Transparency Act (CTA) was passed by Congress in 2021 and went into effect on January 1, 2024. The measure requires that all US-based business entities, with exemptions for certain institutions such as banks, trusts, and sole proprietorships, report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
CTA was to strengthen anti-money laundering laws by requiring businesses to provide detailed reports about their ownership. However, as the court’s decision points out, “corporate formation includes far more than for-profit enterprise.” Millions of entities find themselves under the umbrella of required reporters of BOI, including limited liability companies (LLCs) and non-profit organizations.
Critics of the CTA claim the reporting requirements place an undue burden on small businesses and non-profits, which may not have the time or resources to provide regular reports or pay fines for noncompliance, which can be up to $500 for each day past the filing deadline. Citing this concern, along with the argument that BOI reporting requirements violate the privacy rights of business owners by compelling disclosure of sensitive personal information, the National Small Business Association sued the Department of the Treasury in November 2022. On March 1 of this year, a federal court in Alabama ruled in favor of the plaintiffs, concluding that the Corporate Transparency Act “exceeds the Constitutions limits on the legislative branch.”
In a notice on their website, FinCEN says they will comply with the court’s order to refrain from enforcing the CTA against the plaintiffs, Issaac Winkles and reporting companies for which Winkles is the beneficial owner, and the National Small Business Association and its members. All other businesses that are not exempt must still comply with BOI reporting. The ruling also does not apply to requirements of similar laws on the state or local level, such as the New York LLC Transparency Act.
The Justice Department filed a Notice of Appeal of the Court’s decision on behalf of the Department of the Treasury on March 11th.
The full text of the federal court’s decision can be read here https://law.justia.com/cases/federal/district-courts/alabama/alndce/5:2022cv01448/183445/51/
Call the attorneys at Altman & Associates with any questions regarding CTA. They can be reached at 301 468 3220 or via info@altmanassociates.net
