Corporate Transparency Act

Corporate Transparency Act

Earlier this year, we emailed everyone on our email list the following, and we once again encourage you to consult with your attorney. Though the information necessary to comply with the CTA requirements may overlap with information that we request from you to satisfy your income tax and other compliance requirements, the CTA reporting requirements fall outside the scope of tax compliance and other permissible services that Haynie & Company can provide. As a result, Haynie & Company is restricted from assisting or advising you regarding these new rules. It is strongly recommended that you familiarize yourself with these new rules. FinCEN has issued a set of FAQs that explain the rules. However, these reporting requirements are complex, and we encourage you to consult with your attorney to ensure that you comply with these new requirements.

Corporate Transparency Act Declared Unconstitutional

Last week, a U.S. District Court in Alabama declared the Corporate Transparency Act (CTA) unconstitutional. The law, which requires closely held businesses to file detailed information with the Financial Crimes Enforcement Network (FinCEN), has been deemed an overreach of Congress’s powers. The CTA was enacted as part of the 2021 National Defense Authorization Act and became effective for newly formed entities (called “Reporting Companies”) on January 1, 2024. It requires entities existing before 2024 to complete their first filings by January 1, 2025. New entities created after January 1, 2024, have 90 days to file the paperwork. Despite this ruling, the government may appeal the decision, and the future of the CTA remains unclear.

Reaction from the Judge

The judge outlined how the government could make the CTA constitutional by rewriting the law. He found that the law didn’t come close to being constitutional, leading to the summary judgment. Additionally, he criticized the penalties imposed by FinCEN for non-compliance, deeming them “offensive, unfair, and outrageous.” The judge also highlighted that the law could be seen as a trap for small business owners, as it required extensive reporting even for minor changes in beneficial ownership. Keeping track of such details and ensuring timely reporting to FinCEN within 30 days was deemed nearly impossible for many businesses.

FinCEN’s Reaction Limiting the Ruling to Only the NSBA Plaintiffs

The day after the ruling by the U.S. District Court in Alabama, FinCEN announced that they would not enforce the beneficial ownership information (BOI) requirements against the National Small Business Association (NSBA) members. The NSBA leaders and attorneys expressed disappointment with FinCEN’s decision, suggesting that if it’s unconstitutional for NSBA members, it should be the same for all businesses.

Recommendation on How to Proceed

Unless you are one of the approximately 65,000 members of NSBA, you should treat this ruling as a temporary decision. It is expected to be appealed, and changes will be forthcoming from the Courts and Congress.

The American Institute of CPAs (AICPA) advised small businesses to continue filing BOI reports while also advocating for the suspension of the BOI reporting rule. New entities formed after January 1, 2024, are required to file within 90 days, which drops to 30 days starting in 2025. Entities existing before 2024 have until January 1, 2025, to file, so there is more time to evaluate how to proceed.

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