United States: No Exception For The Masses: Update On The Corporate Transparency Act

As many of you may have seen in the news, on March 1, 2024, a federal district court in Alabama found the Corporate Transparency Act (CTA) unconstitutional. The suit, National Small Business United v. Yellen (National Small Business), was brought on behalf of an individual plaintiff (Isaac Winkles) as well as National Small Business United d/b/a National Small Business Association (NSBA), an Ohio nonprofit trade group representing small businesses nationwide. Presiding over the matter was Judge Liles C. Burke, of the U.S. District Court for the Northern District Court of Alabama. Judge Burke found the CTA unconstitutional on the grounds that it exceeds Congress' enumerated powers (noting that the CTA applies to all entities without regard to their connection to interstate commerce). Judge Burke also entered a judgment enjoining the Financial Crimes Enforcement Network (FinCen) from enforcing the CTA against the named plaintiffs. (The plaintiffs alleged other constitutional deficiencies which Judge Burke did not proceed to address. Those interested can read Judge Burke's opinion here.) The Justice Department filed a Notice of Appeal on March 11, 2024 with the U.S. Court of Appeals for the Eleventh Circuit on behalf of the Department of Treasury.

FinCen in a March 4 notice has responded that, while this litigation continues, FinCEN will not enforce the CTA against Mr. Winkles, his reporting entities, the NSBA and members of the NSBA as of March 1, 2024 (the date of Judge Burke's injunction order). (In other words, if you are thinking about joining the NSBA now as a way to avoid CTA reporting then forget it.) Otherwise, FinCen will continue to enforce the CTA, and all other reporting companies not otherwise exempt remain subject to the CTA's filing requirements. Accordingly, corporations and LLCs formed after 2023 will have 90 days after formation to report, and those formed before 2024 will have until 2025 to do so (when, we hope, there will be more clarity as to where the National Small Business litigation and possible new challenges to the CTA in and outside the Eleventh Circuit).

See our previous eAlert on this topic.

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