Recent Developments Regarding the Corporate Transparency Act: Lawsuits, more FAQ Updates, and Congressional Action

Lawsuits

Various plaintiffs continue to seek relief from the reporting requirements of the Corporate Transparency Act (the “CTA”) by asserting that the CTA is unconstitutional.  To date, only an Alabama federal district court has opined on the matter. In National Small Business United (“NSBU”) v. Yellen. The district court ruled that the CTA is unconstitutional because it regulates beyond the regulatory powers of Congress. The U.S. Justice Department, on behalf of the Treasury Department has appealed the NSBU decision to the 11th Circuit Court of Appeals, with oral arguments scheduled for the week of September 16. As of June 10, 2024, there are five other cases challenging the CTA.  These other suits also challenge the constitutionality of the CTA offer a variety of different arguments, including many common to the, the NSBU case. These other claims include: (1) political speech regulation under the First Amendment; (2) chilling of the right to associate under the First Amendment; (3) unlawful search and seizure under the Fourth Amendment.  These newer cases also request that the court enjoining enforcement of the CTA against anyone subject to its provisions, unlike the NSBU case, which granted relief solely to the plaintiff.  CCM will continue to monitor these cases and others in order to advise clients on how they affect their CTA reporting obligations.

Updated FAQs

On June 10, 2024, FinCEN updated their FAQ section with certain answers to questions regarding the CTA. Selected updates include:

C.10 – Homeowners Associations are reporting companies if the HOA was created via the filing of a document with a secretary of state’s office or similar government office, and none of the exemptions apply.

L.8. – Telecommunication services entities are not required to report beneficial ownership information to FinCEN due to the public utility exemption.

L.9. – A company seeking to qualify for the large operating company exemption should use the tax return filed in the previous year, i.e., the most recently filed return, to demonstrate gross receipts or sales over $5,000,000.00.

Congress’ CTA Bills

Three bills have been introduced in Congress to amend or repeal the CTA:

H.R. 4035, the ‘Protecting Small Business Information Act of 2023’ would delay the effective date of FinCEN’s final CTA rules until after the Secretary of Treasury certifies to Congress that all final rules under the CTA have been issued, so that the CTA issues all rules with the same effective date.

H.R. 5119, the ‘Protect Small Business and Prevent Illicit Financial Activity Act’ would extend the deadlines for entities to comply with CTA reporting obligations, namely: (1) a reporting deadline for existing reporting companies of 24 months rather than 12 months; (2) a reporting deadline for newly formed companies to file their initial report of 90 days; (3) a 90-day deadline for companies to file any necessary updated reports. The bill also proposes to prohibit a reporting company from asserting that it is ‘unable to obtain’ or ‘unable to identify’ required beneficial owner information.

H.R. 4187 / S. 4297, the “Repealing Big Brother Overreach Act” would repeal the CTA in its entirety.

CCM will continue to monitor changes to the BOI reporting requirements under the CTA. For more information, visit the CCM CTA Resource Library at www.ccmlawyer.com.

The author, publisher, and distributor of this CCM Alert is not rendering legal or other professional advice or opinions on specific facts or matters. Under applicable rules of professional conduct, this communication may constitute Attorney Advertising.

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