by Steven Land, Esquire and Craig Panholzer, Esquire
On March 1, 2024, the United States District Court for the Northern District of Alabama (the “U.S. District Court”) ruled that the Corporate Transparency Act (the “CTA”) is unconstitutional, adding uncertainty to the CTA’s application to, and effect on, millions of businesses.
The CTA, which went into effect on January 1, 2024, requires nearly all businesses, including small family businesses, that were formed prior to January 1, 2024 to disclose the identity of their individual beneficial owners to the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury, before January 1, 2025. Additionally, the CTA requires nearly all businesses formed on or after January 1, 2024 to make this disclosure within 90 days of the business’s formation. We further outlined the CTA and the requirements placed on businesses prior to the New Year, Pulling Back the Curtains on Business Entities: The Corporate Transparency Act.
On March 1, 2024, the U.S. District Court ruled that Congress did not have authority under the United States Constitution to enact the CTA. The U.S. District Court entered an order prohibiting the federal government from enforcing the CTA against the plaintiffs in the case — the National Small Business Association (the “NSBA”). The U.S. District Court did not elaborate as to whether the order prohibits the federal government from enforcing the CTA against the more than 65,000 businesses who are members of the NSBA, or just the NSBA itself. Notably, the order does not prohibit the federal government from enforcing the CTA against all other businesses.
The Department of the Treasury will likely appeal the ruling to the United States Court of Appeals for the Eleventh Circuit, and it is possible that the case will thereafter be appealed to the United States Supreme Court. Currently, the U.S. District Court’s order is in effect, pending an appeal.
Regardless of the ruling, business owners should be prepared to file the required disclosure under the CTA in a timely manner. Business owners who formed their businesses on or after January 1, 2024 only have 90 days following the date of formation of their business to file the required disclosure. Business owners who formed their businesses before January 1, 2024 may file the required disclosure by December 31, 2024. Failure to timely and accurately file the required disclosure may result in severe penalties. Please contact our Business and Tax Law Practice Group to ensure your business complies with the CTA.
Steven Land is an attorney in Cooper Levenson’s Business & Tax practice group in its Atlantic City office. He concentrates his practice on business transactions, mergers and acquisitions, tax matters, and estate planning and administration. Steven may be reached at (609) 572-7530 or via e-mail at sland@cooperlevenson.com.
Craig Panholzer is an attorney in Cooper Levenson’s Business & Tax practice group in its Florida office. He concentrates his practice on business transactions, estate planning, special needs planning, probate and tax matters. Craig may be reached at (954) 889-1856 or via e-mail at cpanholzer@cooperlevenson.com.
