UPDATE: On December 3, 2024, a Federal District Court issued a nationwide injunction barring enforcement of the Corporate Transparency Act and ruling that companies "need not comply" with the January 1, 2025 reporting deadline. Read our December 2024 article and please contact Danielle Hunt or Jesse Kobernick if you have any questions.
A federal district court in Northern District of Alabama issued an opinion on March 1, 2024, in the case of National Small Business United v. Yellen, granting summary judgment in favor of the plaintiffs, holding that the Corporate Transparency Act (CTA) is unconstitutional. The Court found that 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 Court then permanently enjoined the government from enforcing the CTA against the named plaintiffs only.
On March 4, 2024, FinCEN, the bureau within the U.S. Department of Treasury responsible for enforcing the CTA, released a notice communicating that FinCEN will comply with the Court’s order for so long as it remains in effect and expressly stating that the plaintiffs in the case, including members of the National Small Business Association (NSBA) as of March 1, 2024, are not required to report beneficial ownership information to FinCEN at this time.
The implications of this ruling are uncertain, particularly concerning businesses that join the NSBA after March 1, 2024. The Justice Department, on behalf of the Department of the Treasury, filed a Notice of Appeal on March 11, 2024. The appeals process could take months or years, and other plaintiffs may challenge the CTA in other jurisdictions. The Court’s opinion also identified a way in which Congress could have drafted the CTA to pass constitutional muster—namely, by imposing the CTA disclosure requirements on state entities as soon as they engage in commerce. It’s possible that Congress could amend the CTA in such a manner that the regulatory framework would remain largely intact.
As no national injunction was imposed by the Court, we recommend that clients continue to comply with the reporting requirements and be cognizant of the applicable deadlines. Please refer to our original alert on the CTA for a summary of the obligations and deadlines, and please reach out to us with any questions.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
