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U.S. District Court declares Corporate Transparency Act unconstitutional

The U.S. District Court for the Northern District of Alabama recently ruled the law requiring businesses to report their “beneficial ownership” to the Treasury Department as unconstitutional. The suit against the Corporate Transparency Act (CTA) was brought by the National Small Business Association against the U.S. Treasury.

Since the court did not issue a national injunction, the decision prevents the government from applying the CTA to "the plaintiffs," allowing the CTA's reporting regime to remain in effect for all other reporting companies except those involved in the case.

By way of background, under the 2021 CTA, many U.S. businesses are required to provide the Financial Crime Enforcement Network (FinCEN) with their beneficial ownership information (BOI). Effective Jan. 1, 2024, companies, except those with specific exemptions, must file a form electronically with FinCEN, reporting data about beneficial owners. While there is no filing fee, failure to file can result in substantial civil and criminal penalties, including imprisonment.

What’s next?

Some commentators have already stated they expect the decision to be appealed and overturned. Former IRS Commissioner Chuck Rettig said that businesses shouldn’t assume they no longer have to follow the law. “Right now, you see most businesses, most professionals continue to follow the law as we understand it,” Rettig said in an interview. “Most tax professionals wait until you have a circuit court opinion to really react – and particularly if you’re outside of the area of the district court.”

At this time, Baker Tilly suggests you continue to gather the necessary information to comply with the Jan. 1, 2025, filing requirement for companies existing at the end of 2023. For new companies created or registered after Dec. 31, 2023, that filing deadline is 90 days from formation. For a more in-depth discussion of the filing requirements, see our previous article.

New York law

The Federal District Court ruling doesn’t impact a similar law enacted by New York last year. New York’s law is modeled after the federal CTA and requires limited liability companies to disclose their beneficial owners to the state by January 2027.

Many accounting firms, including Baker Tilly, have determined that assistance with BOI reporting constitutes a practice of law. As a result, we encourage you to reach out to your legal advisor to discuss the possible impact of this decision on your filing requirements, or for assistance in determining your filing requirements.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. Baker Tilly US, LLP does not practice law, nor does it give legal advice, and makes no representations regarding questions of legal interpretation.

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