Fort Lauderdale, Fla. (March 11, 2024) - On March 1, 2024, a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) declaring the Corporate Transparency Act (the "CTA") unconstitutional. The Court concluded that the CTA exceeded Congress's constitutional powers and permanently enjoined FinCEN from enforcing it against the plaintiffs. The judgment has left many questioning its impact, wondering whether they should continue to report beneficial ownership to FinCEN or wait for final disposition of the case.
Notably, the Court's final judgment was narrowly drawn to apply only to FinCEN's enforcement of the CTA as against the plaintiffs. That is, FinCEN may not enforce the CTA against the individual plaintiffs, nor National Small Business United and its 65,000 members as of March 1, 2024. On March 4, 2024, FinCEN issued a press release stating, in part:
FinCEN is complying with the court's order and will continue to comply with the court's order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.
Considering both the Court's final judgment and FinCEN's carefully crafted response, individuals who are not within the judgment's immediate scope should continue to report beneficial ownership to FinCEN. Entities formed on or after January 1, 2024, have 90 days from the date of formation to submit beneficial ownership information and should continue to do so promptly. However, for entities formed prior to such date, the reporting deadline is January 1, 2025. In either case, FinCEN is still accepting beneficial ownership information reports via its website.
What's Next?
We expect the government to appeal the ruling to the Federal Circuit Court of Appeals and to request a stay of judgment pending the appeal. It's also likely that there will be an uptick in similar lawsuits filed by other individuals and entities hoping for the same outcome as National Small Business United v. Yellen. In the meantime, another case is pending in the U.S. District Court for the Northern District of Ohio challenging the CTA as a violation of civil rights. This case seeks a nationwide injunction against enforcement of the CTA. The suit is in its very early stages, and while a decision may not be handed down anytime soon, we will continue to monitor all developments as we advise clients on CTA compliance issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
