Updated April 1, 2024
On March 1, 2024, a significant development unfolded in the legal landscape as a federal district court in the Northern District of Alabama rendered a verdict declaring the Corporate Transparency Act (CTA) unconstitutional. In the case National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), the court ruled that the CTA exceeds the limits of Congress’s power outlined in the Constitution.
Impact and Exemptions
The court’s decision resulted in an injunction against the government, preventing the enforcement of the CTA against the plaintiffs involved in the case. Notably, this only includes Isaac Winkles, reporting companies linked to Isaac Winkles as the beneficial owner or company applicant, the National Small Business Association, and its members as of March 1, 2024. It is essential to recognize that while these entities are exempt from CTA compliance now, all other entities are still obligated to adhere to the law.
Following the court ruling, the government filed a notice of appeal on March 11, 2024. The timeline for the appeal process remains uncertain, with expectations that a resolution may take several months at the very least.
Compliance Deadlines and Considerations
Despite the legal uncertainties surrounding the CTA, the December 31, 2024, deadline for filing the Beneficial Ownership Information Report (BOIR) remains in effect for entities established before January 1, 2024. Similarly, the 90-day deadline from the date of formation still applies to entities formed on or after January 1, 2024.
Entities deciding whether to file the BOIR now or await further legal clarity should consider the potential impact of the ongoing appeal process. While the appeal outcome remains pending, entities must prioritize compliance with the CTA before the stipulated deadlines. The Financial Crimes Enforcement Network continues to enforce the law against all entities except those specifically exempted by the recent court ruling.
Smith + Malek is closely monitoring CTA updates, the appeal process, and any subsequent legal developments. To consult an attorney about how these and future updates may affect you and your business, please contact us.