A ‘merit panel’ of judges has reviewed the situation and decided to vacate (cancel) the earlier decision that allowed the law to be enforced.
CTA Whiplash CTA Back Off Again
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is a U.S. federal law that went into effect on January 1, 2024. Businesses that existed prior to January 1, 2024 have until January 13, 2025 to comply. Companies founded after January 1, 2024 must comply within 90 days of forming the new business.
This law created a new beneficial ownership information reporting requirement as part of efforts to make it harder for bad actors to hide. There are some exceptions, but most small businesses are subject to this new law.
Small businesses must now report sensitive personal information on owners and some employees to FinCen (the Financial Crimes Enforcement Network which is part of the Internal Revenue Service) such as social security number, driver’s license, passport number and home address. “Beneficial Owners” refers to all individuals who own or have substantial control in that business. Businesses must keep this filing updated within 30 days of any changes of ownership or previously reported information pertaining to a “beneficial owner.” The penalties associated with noncompliance are thousands of dollars in fines and up to two years in federal prison.
Deadline Looming
If you own a small business, you are likely approaching a reporting deadline for the Corporate Transparency Act (CTA). If you don’t know what this is check out this article we recently published that lays out what it is, who needs to file and, when you need to file.
SBAM Member Resource
SBAM’s partner, Occams Advisory, offers BOIReporting, a simple online service to seamlessly manage your reporting process to give you peace of mind that your report is compliant and submitted on time by the deadline.
Member Briefing
Recorded April 16, 2024
SBAM President & CEO Brian Calley is joined by attorneys Erik Daly and Andrew Portinga of Miller Johnson for a briefing on the Corporate Transparency Act and an update on SBAM’s legal action.
Key Provisions of the Corporate Transparency Act
Beneficial Ownership Reporting
Companies are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly control a significant ownership interest in the company.
Definition of Beneficial Owner
The CTA defines a beneficial owner as an individual who, directly or indirectly, exercises substantial control over a company or owns or controls at least 25% of the ownership interests of the company.
Reporting Requirements
Companies, including limited liability companies (LLCs), corporations, and similar entities, are obligated to file reports with FinCEN containing information about their beneficial owners. This information is not publicly disclosed but is made available to law enforcement and certain government agencies for investigative purposes.
Corporate Transparency Act Timeline
January 1, 2024
The Corporate Transparency Act becomes law.
March 1, 2024
On March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act is unconstitutional. Specifically, the court found that enactment of the CTA could not be justified as an exercise of Congress’ enumerated powers set forth in Article I of the Constitution. As a result, the court held that Congress lacked authority to enact the CTA and that the CTA cannot be enforced against the plaintiffs in that litigation.
March 4, 2024
FinCEN issued a statement confirming that it will not enforce the CTA against Winkles, the NSBA or any individual or entity that was a dues-paying member of the NSBA as of March 1, 2024. While this ruling is significant, it does not provide a justification for any other individuals or companies to stop complying with the CTA.
March 26, 2024
The Small Business Association of Michigan filed a lawsuit against the Corporate Transparency Act in the Michigan 4th District Court of Appeals on the grounds that it is unconstitutional. Due to the nature of the ruling in Alabama, we are hopeful that an injunction will be ordered.
April 26, 2024
In a court hearing on Friday, April 26th, a judge stated he did not believe that there would be irreparable damage done by not issuing a preliminary injunction. The case will continue to play out in court. Watch the Monday, April 29th Small Business Briefing for an update from Brian Calley.
May 20, 2024
The Small Business Association of Michigan is party to an amicus brief filed in the 11th Court of Appeals, in support of the plaintiff, the National Small Business Association, in its case vs. the U.S. Department of Treasury. Learn more on SBAM’s Small Business Briefing.
December 3, 2024
A Federal District Court in Texas has issued a nationwide preliminary injunction against the Corporate Transparency Act, finding that the plaintiffs have met the burden of showing the law is a beyond the scope of the authority of Congress. In other words, the passage of the law relied on an excessively broad interpretation of the Commerce Clause in the Constitution. This action comes just weeks ahead of a looming deadline of 12/31/2024 when millions of small businesses would have had to make their first filing.
December 16, 2024
Judge Jonker heard oral arguments regarding SBAM’s lawsuit. Judge Jonker noted that the CTA is an “incredibly burdensome law” that imposes “massive costs on small businesses.” He also seemed to imply that the CTA is designed to get around traditional Fourth Amendment protections, such as having to get a subpoena.
December 23, 2024
The Federal government appealed their case to the 5th Circuit Court of Appeals and were successful in getting a stay on the injunction against enforcement of the Corporate Transparency Act. Translation: The Corporate Transparency Act (CTA) is back on and small businesses are once again required to report beneficial owners to the FinCEN (a part of the IRS) by January 13, 2025.
December 27, 2024
A new panel of judges (the “merits panel”) reviewed the situation and decided to vacate (cancel) the earlier decision that allowed the law to be enforced. This restores the district court’s injunction, meaning the government is once again blocked from enforcing the CTA and Reporting Rule for now.
SBAM’s Legal Action
The Small Business Association of Michigan is taking legal action against the invasive and unconstitutional Corporate Transparency Act.
This is on the heels of a March 1, 2024 ruling by the U.S. District Court for the Northern District of Alabama that held the Corporate Transparency Act is unconstitutional. Subsequently, decisions were issued that the CTA cannot be enforced against the specific plaintiffs (National Small Business Association and its dues-paying members). All other businesses subject to the CTA must still comply.
Media Coverage
Commentary: Small businesses deserve support, not roadblocks
Michigan Small Business Group Files Suit Challenging Corporate Transparency Act
CTA Heats Up with New FAQs, Government and Amicus Briefs and New Draft Legislation
Opinion: Corporate Transparency Act an Illegal Burden on Small Business
Treasury Stares Down Another Challenge To CTA After Michigan Plaintiffs File Suit – Forbes
Small business reporting requirement found unconstitutional by Alabama federal judge –
Ask a Legal Expert
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Additional Resources
Under the Corporate Transparency Act (CTA), the deadline for “reporting companies” to file their initial beneficial ownership information (BOI) report with FinCEN is just weeks away. If you are responsible for a reporting company and haven’t filed your report, now is the time to collect the information needed to file your entity’s report before January 1, 2025.
On February 7, 2024, Jonathan Wilson presented a webinar: “What small business owners need to know about the Corporate Transparency Act”
In a January 2024 episode of SBAM’s Small Business Briefing, attorney Corinne Sprague of Warner Norcross + Judd provided detailed insight into the Corporate Transparency Act and what small business owners need to do to be compliant.
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