You may have heard about the Corporate Transparency Act (CTA) and its implications for businesses starting January 1, 2024. However, recent developments have put the future of this Act in question. On March 1, 2024, Judge Liles C. Burke of the United States District Court declared the CTA unconstitutional in the case of National Small Business Association v. Yellen. Let’s break down what this means and why it matters.
What is the Corporate Transparency Act?
The Corporate Transparency Act aims to bring greater transparency to business ownership. It requires certain entities, including Limited Partnerships (LPs), Limited Liability Companies (LLCs), and Corporations, to disclose information about their beneficial owners. The objective is to combat issues like money laundering, tax evasion, and other illegal activities by understanding who truly controls a business.
Key Provisions of the CTA:
- Entities subject to filing: LPs, LLCs and Corporations
- Objective: To identify the legal owners and prevent financial crimes.
- Exemptions: Some inactive entities and those meeting specific criteria such as number of employees or gross sales may be exempt.
- Penalties: Non-compliance can lead to fines ranging from $500 per day to $10,000 for late filing and up to 2 years in prison for non-compliance.
- Filing Deadlines: Vary depending on when the entity was established.
- Filing Requirements: Legal name, physical address (no P.O. Box) jurisdiction and Federal Tax ID of the business and beneficial owner’s date of birth and home address. In addition, the beneficial owner would need to provide an identifying ID such as a driver’s license or U.S. passport. Directors (of Corporations), Managers (of LLCs) and General Partners (of Limited Partnerships) are required to file as well.
Why Was the CTA Ruled Unconstitutional?
The ruling in the case challenged the constitutionality of the CTA. Plaintiffs argued that Congress overstepped its authority by mandating the disclosure of personal stakeholder information to the Financial Crimes Enforcement Network (FinCEN). The court agreed, stating that Congress lacked the power to impose such requirements under the US Constitution’s Article I.
Implications of the Ruling:
With the CTA being declared unconstitutional, it cannot be enforced against the plaintiffs in this case. However, this decision is likely to have broader implications, potentially affecting businesses nationwide. It's expected that the ruling will be appealed, but until then, the future of the CTA remains uncertain.
What Does This Mean for Business Owners?
For now, business owners and their advisors should stay informed about developments related to the CTA. The changing regulatory landscape could have significant implications for compliance and operations. While the CTA's fate is uncertain, it's essential to monitor legal updates and adapt accordingly. Any of the foregoing entities required to report that we formed prior to 2024 have until December 31, 2024 to file a report. Stay tuned for further updates throughout 2024 as to whether or not the Corporate Transparency Act will be enforceable.
The ruling of the Corporate Transparency Act marks a significant development in the ongoing debate over business transparency and government regulation. While the CTA aimed to enhance accountability and combat financial crimes, its constitutionality has been called into question. As legal proceedings continue, businesses must remain vigilant and responsive to potential changes in regulatory requirements. Stay informed, stay compliant, and stay tuned for further updates on this evolving issue.
If you, a friend, or family needs help with business planning, please reach out to our Intake Department at 760-448-2220 or at https://www.geigerlawoffice.com/contact.cfm. We have offices in San Diego County (Carlsbad) and Orange County (Laguna Niguel), but we can assist clients throughout California as well.
