On March 1, 2024, the United States District Court for the Northern District of Alabama, in the case of National Small Business United v. Yellen, declared that the Corporate Transparency Act (CTA) is unconstitutional. Although FinCEN announced that it will comply with the Court's order for as long as it remains in effect and that the government is not currentlyenforcing the CTA against the plaintiffs in the case (including members of the National Small Business Association), it is likely that either (i) the decision will be appealed by the government and that pending the appeal the decision will be stayed, or (ii) FinCEN will propose amendments to the CTA, which if adopted will address and seek to cure the constitutional issues. Pending any such appeal and stay or amendment, what should you do?
- With respect to entities that were in existence on January 1, 2024 and therefore not required to file a beneficial ownership report until the end of this year, continue to gather information required to be disclosed, but delay the filing of the report until later this year when hopefully more information will be available on the effect of the decision. It should be noted that we have generally advised entities falling in this category to, in any event, similarly delay filing their reports with the hope that as the year progresses FinCEN issues further clarifications of the CTA.
- With respect to entities formed this year, in which case they have 90 days from the date of formation to file their beneficial ownership report, continue to gather information required to be disclosed but delay the filing of the report until the end of the applicable 90 day or if earlier, until further clarifying information is available.
- With respect to entities that are members of the National Small Business Association, regardless of when formed, FinCEN's initial response, like many aspects of the CTA, is less than entirely clear and does not offer specific guidance as to whether or when in the future it will seek to enforce the CTA. Therefore, despite FinCEN's announcement that it is not currently enforcing the CTA, the best practice would be to follow recommendation 1 or 2 above, as applicable.
If you have questions concerning the effect of the decision in National Small Business United v. Yellen or the CTA in general, please do not hesitate to contact Seyfarth's Corporate Transparency Act Task Force.
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