Latest News About the Corporate Transparency Act

By Elidia C. Dostal, Partner

The Corporate Transparency Act (CTA) continues to make news since it went into effect on January 1, 2024. As you may recall from my previous post, the CTA was part of the Anti-Money Laundering Act of 2020 and it impacts nearly all business owners. It was enacted to increase transparency in corporate ownership by mandating certain companies disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury.?

Under the CTA, covered entities must report detailed information about their beneficial owners. Companies must also update this information within one year of any changes. Businesses formed before January 1, 2024 have one year to file their paperwork — until December 31, 2024. Entities newly formed in 2024 must file within 90 calendar days of creation or registration. Filing is easy and free of charge. Companies need only file beneficial ownership information once, unless updates or corrections need to be made.

On March 1, 2024, in the case of National Small Business United v. Yellen, a federal district court in the Northern District of Alabama, Northeastern Division, determined the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power. The ruling prohibits the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs.?

While this is an important development for the CTA, it is important to remember that this is only one court’s ruling that applies to specific plaintiffs, and it’s not within California’s district. So while companies may want to wait until closer to their deadline to report to see if the regulations are updated in response to the ruling, I do not recommend any companies or business owners not report by their deadline.?

It is still unknown as to how this ruling may affect the CTA going forward. The Justice Department, on behalf of the Department of the Treasury, filed a Notice of Appeal on March 11, 2024. While this litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order. As such, reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.

If companies do not comply with the CTA requirements, they could face significant penalties, including civil and criminal prosecution. Additionally, failure to report accurate and timely information or providing false information can result in fines of up to $10,000 and prison time for up to two years.

Remember, just because the CTA is in question in one district does not mean that will affect your business. The CTA requirements should not be ignored and working with an experienced business attorney is the best step to take to assure your company is compliant.?

Elidia C. Dostal is a business transactional and compliance attorney and partner with Vanst Law LLC. She serves business clients who understand the importance of involving an attorney at the front end of business transactions and compliance issues to avoid the high cost of litigation or regulatory fines. Elidia brings an expert understanding of the importance of thinking ahead to avoid potential future liabilities.