Developments Regarding the Corporate Transparency Act
Multiple Court Cases Leave an Uncertain Landscape
In an article I wrote last February, I made note of Congress’ enactment of the Corporate Transparency Act (“CTA”) on January 1, 2021. The implementation of the CTA followed on January 1, 2024, when the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) promulgated a final rule detailing the filing requirements for the CTA.
As I noted in my article last year, the purpose of the CTA was to help protect our national security by giving the Treasury Department more information about corporate filings and the owners of companies who do business in the United States.
The CTA requires certain business owners to file information with FinCEN with regard to their companies, however, last year the CTA was challenged in federal court in several states, including Alabama and Texas.
What happened in Alabama?
In the case of Nat’l Small Bus. United v. Yellen, a federal district court in Alabama held on March 1, 2024, that the provisions of the CTA were unconstitutional and could not be applied against the plaintiffs in that case. That case, however, only applied to those plaintiffs and did not have nationwide effect.
What happened in Texas?
In the case of Texas Top Cop Shop, Inc. v. Garland, a federal district court in Texas held that the provisions of the CTA were likely unconstitutional and issued a nationwide injunction against its enforcement. Unlike the Alabama case, this injunction had nationwide effect and meant that companies were not required to file information with FinCEN.
Was the Texas case appealed?
Yes. It was appealed to the U.S. Court of Appeals for the Fifth Circuit, where a motions panel of that Court stayed the nationwide injunction. On December 26, 2024, however, only three days after the motions panel of the Court stayed the nationwide injunction, the merits panel of the same Court vacated the stay of the injunction, which meant that the injunction was back in effect.
What is the current status of the CTA?
After the merits panel of the U.S. Court of Appeals for the Fifth Circuit vacated the stay of the injunction, the provisions of the CTA were no longer enforceable nationwide. This is a temporary step, pending the Court’s later decision on the merits of the case.
What are the next steps in Court?
The federal government has submitted a petition to the U.S. Supreme Court to stay the nationwide injunction kept in place by the U.S. Court of Appeals for the Fifth Circuit. Justice Samuel Alito, who handles emergency matters for the Fifth Circuit, has asked the plaintiffs in the Texas case to respond to the government’s request by today, January 10, 2025.
Why does all this matter?
The legal maneuvering regarding the CTA has been substantial and interesting (at least to lawyers) during the last year, but why does it matter to the general public? It matters because the CTA requires information be filed for certain small businesses with FinCEN at the U.S. Treasury Department.
When are the initial filings due?
For companies formed prior to 2024, the filings (prior to the nationwide injunction) were due by January 1, 2025. For companies that were created in 2024, the filings were due within 90 days of when they were formed. For companies that are created in 2025, the filings are due within 30 days of when they are formed.
What happens if a company does not file?
Penalties for willful noncompliance include civil penalties of $500/day while the violation continues and a criminal fine of up to $10,000 and/or two years in prison.
Who has to file and what is the process?
For answers to that question, I refer you back to my article published in the February 16, 2024 issue of Saratoga Today, which is available on-line. In that article, I review the details regarding who has to file and the process involved.
Given the current uncertainty regarding the CTA, it is difficult to know what to do if you are required to file with FinCEN pursuant to the terms of the CTA. FinCEN is currently keeping their filing portal open, so voluntary filings will be accepted if you wish to file. Otherwise, if the CTA applies to you, you can await the outcome of the battle in the Courts – which has now made its way all the way up to the U.S. Supreme Court.
When dealing with business compliance matters, it is always useful to seek counsel from attorneys who keep track of developments in the law. This is advisable because failure to comply with CTA requirements, if they are reinstated, can result in significant fines and even possibly incarceration.
Matthew J. Dorsey, Esq. is a Shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY. Over his twenty-eight years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at (518) 584-5205, mdorsey@oalaw.com and www.oalaw.com.
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