Provided by James A. Carolan, CWS®, CTFA | Sr. Estate Planning Attorney for EWM Legal Solutions
On Friday, March 1, 2024, in National Small Bus. United v. Yellen, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the Corporate Transparency Act (CTA), enacted in 2021, is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to the Financial Crimes Enforcement Network (FinCEN), the criminal enforcement arm of the US Department of the Treasury. The National Small Business Association (NSBA), an Ohio nonprofit organization representing more than 65,000 businesses from all 50 states, and Issac Winkles, an NSBA member and owner of two small businesses, brought suit against the US Department of the Treasury and Treasury Secretary Janet Yellen, alleging that the mandatory disclosure requirements imposed by the CTA exceeded Congress’s authority under Article I of the US Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments.
The court determined that the plaintiffs were entitled to summary judgment as a matter of law because the CTA could not be justified as an exercise of Congress’s enumerated powers, rejecting the argument that Congress had the power to enact the CTA under its foreign affairs powers, Commerce Clause authority, or as a necessary and proper exercise of its taxing power. It declined to address whether the CTA violates the First, Fourth, and Fifth Amendments. The court granted the plaintiffs’ motion for summary judgment and request for relief and entered a final declaratory judgment that the CTA is unconstitutional because it exceeds the limits imposed by the US Constitution on Congress’s power, permanently enjoining the defendants and any other agency or employee acting on behalf of the United States from enforcing the CTA against the plaintiffs.
At this time, the CTA cannot be enforced against the particular plaintiffs in this particular case, but the decision (which will likely be appealed) could ultimately have far-reaching consequences. Business owners and their advisors should monitor the changing regulatory landscape as this case—and any others—travel through the appellate courts. EWM Legal Solutions will continue to monitor developments related to the CTA and provide updates.
Currently, the CTA remains in effect for everyone except the plaintiffs in the case.
Remember, under the CTA reporting, companies have to file their reports by January 1, 2025, for those entities created prior to January 1, 2014. For any reporting companies created AFTER January 1, 2024, you have to file an initial report within 90 days of creation of the reporting entity. Reporting companies include the LLC’s and corporations for client small businesses. The CTA requires disclosure of individuals who directly or indirectly control at least 25% of the ownership interests.
The case is: National Small Bus. United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. Mar. 1, 2024)
Update March 6, 2024
On March 4, 2024 FinCEN released the following statement:
“FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.”
Anyone who was a member of the National Small Business Association on the date the judgment was entered (March 1, 2024) does not have to comply with the filing requirements. You can’t join the NSBA today, though, and be part of the class who does not have to file.
Where To Start?
Contact me at EWM Legal Solutions. I’m here to assist you in these kinds of legal matters, helping you protect what you care about most.
James A. Carolan, CWS®, CTFA
Sr. Estate Planning Attorney
Executive Wealth Management and EWM Legal Solutions are separate but affiliated companies. Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any specific level of qualification or skill. Investment Advisor Representatives of EWM offer Investment Advice and Financial Planning Services to customers located within the United States.
