Why CTA Enforcement Is Not Over Yet

The recent case, National Small Business United v. Yellen suspends enforcement of the law for the plaintiffs, but not for anyone else.

In a landmark decision on March 1, 2024, a federal judge in the Northern District of Alabama declared the Corporate Transparency Act unconstitutional, causing a wave of uncertainty among small business owners, including those who run family businesses. The ruling, resulting from a lawsuit filed by individual small business owner Isaac Winkles and National Small Business United, challenges Congress's authority to enact the CTA under the Interstate Commerce Clause of the Constitution.

The CTA, which aims to improve transparency and combat illicit activities, requires companies to report beneficial owners to the Financial Crimes Enforcement Network. With the compliance deadline approaching, the court's decision raises critical questions for family businesses regarding their reporting obligations.

While the ruling currently applies only to the plaintiffs, Winkles and NSBU, its implications may extend further, as Treasury is expected to appeal the decision to the 11th Circuit Court of Appeals. However, the appeals process could take several months or even years, leaving companies in a state of limbo. Meanwhile, FinCEN is out specifically limiting the suspension to the plaintiffs.

There have been a series of announcements from law firms, accounting firms and other consultants since the decision was made on March 1, giving the impression that enforcement of reporting requirements for the information has been suspended. on real beneficiaries. This is wishful thinking at best and very bad advice at worst. The requirements remain in effect for all non-plaintiffs in the lawsuit, and FinCEN will enforce the reporting requirements.

Therefore, for reporting companies, compliance with reporting requirements remains the prudent course of action. Entities formed in 2024 must submit an initial report within 90 days of incorporation, while those established before 2024 have until December 31, 2024 to comply. Failure to comply with these deadlines could result in significant fines or criminal sanctions.

As the legal battle over the constitutionality of the CTA unfolds, family businesses must stay informed and prepared to adapt to the evolving regulatory environment. The outcome of this case could have lasting impacts on the transparency and regulatory requirements facing family businesses across the country.

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