Update on the Corporate Transparency Act in mid-2024
On January 1, 2024, the Corporate Transparency Act (CTA) went into effect. The CTA requires most smaller corporations, most limited liability companies, and some other business entities to file a beneficial ownership information (BOI) report with the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN). The BOI report identifies and provides contact information for the human beings who own or control the entity. FinCEN will share this information with law enforcement to combat money laundering and other illegal activities. About 32 million existing and most new businesses are subject to this filing requirement. Since the first of the year, about 500,000 BOI reports have been filed online at the FinCEN website.
But on March 1, 2024, a federal district court (federal trial court) in Alabama ruled that the Corporate Transparency Act was unconstitutional. In National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. 2024), the court issued an injunction staying enforcement of the CTA against the two plaintiffs in the case: a single individual business owner and the National Small Business Association—a 65,000-member nonprofit organization of small business owners. The district court ruling created some uncertainty among businesses subject to the CTA (termed “reporting companies”).
Here’s what you need to know:
If you were not a member of the National Small Business Association as of March 1, 2024, this decision has no immediate impact on you. FinCEN still expects all reporting companies to comply. As expected, the Justice Department, on behalf of the Department of the Treasury, filed a notice of appeal on March 11, 2024. In other words, this trial court decision is far from the final word on the CTA’s constitutionality.
No one can predict how the courts will ultimately rule, but many legal experts believe there are strong legal grounds to reverse the trial court’s decision. If your reporting company existed before 2024, you have until January 1, 2025, to comply with your BOI filing requirement. So you can wait until late 2024 to see what happens with the pending litigation.
If your reporting company was formed during 2024, you have only 90 days after your articles of incorporation, articles of organization, or similar documents were filed with the secretary of state to file your BOI report. You can’t afford to wait.
Meanwhile, New York adopted its own BOI reporting law that applies only to limited liability companies formed in New York or formed out-of-state that register to do business in New York. Existing LLCs must file their reports with the New York Department of State by January 1, 2025. Newly formed LLCs will file their reports when they file their articles or registrations. Other states, such as California, are considering enacting similar laws.
