With this surprising court decision issued March 1, 2024, millions of overwhelmed small business owners can now take a breather from scouring FinCEN’s website and go back to running their businesses. The Northern District Court of Alabama has enjoined all relevant US government agencies from enforcing the Corporate Transparency Act (CTA).
The UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION in (Case Number 5:22-cv-1448-LCB) NATIONAL SMALL BUSINESS UNITED d/b/a the NATIONAL SMALL BUSINESS ASSOCIATION v. JANET YELLEN held that the CTA is unconstitutional. The Constitution does not give Congress the power to regulate millions of entities and their stakeholders (including foreign persons) simply because they have obtained a formal corporate (or similar) status from a State.
Who is Impacted by the CTA? What Does the CTA Require?
As most of my readers know the CTA requires US entities (including for example, US LLCs, corporations, partnerships), and foreign entities that register to do business in a state to disclose to FinCEN of the Treasury Department, the identity of their beneficial owners by providing their name, date of birth, unexpired passport or driver’s license number and current address. Annual filing and updating of the information would be required. Without doubt, the CTA provides FinCEN with yet another significant information gathering tool. More on the CTA at my blog post here.
FinCEN estimates that the CTA applies to 32.6 million currently existing entities and 5 million new entities formed each year from 2025 to 2034.
It’s Not Over
Certainly this holding will be appealed by the government. The constitutional challenge is far from over. Regardless, the court’s ruling will help focus everyone’s attention — CTA is a perfect example of Congressional overreach. Such overreach, left unchecked, poses a massive threat to the privacy of not only law abiding Americans, but to law abiding foreign investors to the USA.
Who Gets the Benefit of this Injunction?
Well, let’s look carefully at what the court said:
“The Defendants, along with any other agency or employee acting on behalf of the United States, are PERMANENTLY ENJOINED from enforcing the Corporate Transparency Act against the Plaintiffs.”
Answer: The Plaintiffs — who are they? My guess (repeat the word, “guess”) is that it applies to the Association and its members (and the private individual who joined the lawsuit). As for entities that are not members of this Plaintiff Association, to me, they are not “plaintiffs”. But, I can see a rush as plaintiff-wannabe’s stampede to join the Association!
Let’s wait and see how this plays out! Watch this space for updates. Subscribe to my blog – info below, and my posts are delivered to your inbox free of charge.
MARCH 5 2024 — BREAKING UPDATE from FinCEN here
March 4, 2024
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