A recent decision by a U.S. District Court has brought significant developments regarding the reporting obligations under the new Corporate Transparency Act (CTA), which we discussed in our February 15 update. In the March 1 case of National Small Business United v. Yellen, the court ruled that the beneficial ownership reporting mandate, as enforced by the Financial Crimes Enforcement Network (FinCEN), constitutes an overreach of Congressional authority and, therefore, is unconstitutional. The plaintiffs in this case, Isaac Wilkes, a small business owner, and National Small Business United, a trade organization representing 65,000 members, successfully challenged the constitutionality of the reporting requirements.
Following the court’s ruling, FinCEN issued a press release on March 4, 2024, stating that it will comply with the court’s order as long as it remains in effect, suggesting that the government will file an appeal. As per FinCEN’s announcement, the beneficial ownership reporting requirements will not be enforced against the plaintiffs, Isaac Wilkes and National Small Business United. However, it’s important to note that this exemption applies solely to members of the National Small Business United, as indicated in the court’s decision.
For businesses outside the purview of the National Small Business United, the reporting mandate remains in effect. Therefore, companies not affiliated with the plaintiff organization must continue to comply with the CTA’s reporting obligations. But since the reporting deadline for entities formed prior to January 1, 2024 is December 31, 2024, it would be advisable for those entities to wait until the end of the year to let this issue work itself through the courts. For companies formed in 2024, the reporting deadline is 90 days from formation. Therefore, the deadline for companies formed on January 1, 2024 is coming up soon – March 31, 2024.
We encourage our clients and friends to stay informed about these developments and reach out to us with any questions or concerns regarding their compliance obligations under the CTA.
