Corporate Transparency Act Ruled Unconstitutional

In a decision released on March 1st, Judge Liles C. Burke of the U.S. District Court in Alabama granted summary judgment and ruled that the Corporate Transparency Act (CTA) is unconstitutional, thereby placing ALL Beneficial Ownership Reporting on hold.

A summary of the CTA and ruling are below.

The Corporate Transparency Act

The CTA, which was enacted in 2021, requires companies to report information about the individuals who ultimately own or control them. Under the CTA, the term “company” was defined as any corporation, limited liability company, or similar entity whether domestic or foreign and doing business in the United States.

Starting January 1, 2024, newly created or registered companies had 90 calendar days from the date of creation/registration to file the report. For those businesses already in existence prior to January 1, 2024, they had until January 1, 2025, to file their reports.

Though designed as an attempt to curb/prevent money laundering and tax evasion, the CTA saw much criticism as overburdensome and invasive.

The Case and Ruling – National Small Business United et al v. Yellen et al

The National Small Business Association (NSBA) sued the U.S. Treasury Department in National Small Business United et al v Yellen et al, arguing that the CTA violated the Plaintiff’s First, Fourth, and Fifth Amendment rights, and was also simply beyond the scope of Congress’ powers. Further, the ask of the company’s owners to present personal data including not only their name and address but copies of identification documents, though well intended, was an overreach.

NSBA President and CEO Todd McCracken was quoted saying, “Americans who are not suspected of doing anything wrong are being asked to provide deeply personal information to a government agency, which is putting the information in a database for criminal law enforcement purposes. These small-business owners will have to pay on average $8,000 in compliance costs in the first year alone. Americans justifiably have little confidence in the federal government’s willingness to secure their personal data, the law calls for the government to share this information with foreign governments.”

The ruling issued late Friday has suspended the U.S. Treasury from enforcing the CTA. In his 53-page decision, Judge Burke wrote, “—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.” We note that the ruling does not opine on the Plaintiff’s First, Fourth, and Fifth Amendment claims.

Wolf’s Insight

Both proponents and critics have been following this case closely and despite the ruling, it is expected that the government will quickly request that the injunction be paused. Most certainly, the government is expected to appeal the ruling.

What does this mean for reporting? Uncertainty. Limbo.

Further developments are certain to arise as appeals are filed, and there is even a question as to whether the ruling applies to entities who are not members of the organization that filed the lawsuit.

As a reminder, this is NOT a federal or state income tax, sales/use, or states gross receipts filing. Compliance with the obligations detailed in this release is in addition to your annual federal and state tax filing obligations.

While Wolf & Company, P.C. is pleased to inform you of the updates to this new reporting requirement, and though we may be able to provide some of the information necessary to complete this filing, assisting with the completion of required reports and determining compliance with the rule is outside the scope of the work our firm can undertake.

Wolf & Company, P.C. encourages you to connect and consult with legal counsel regarding the CTA’s reporting requirements and filings. Wolf & Company, P.C. assumes no responsibility for the preparation of the filing and meeting the filing deadlines noted above.