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Tax News You Can Use

Update on the Corporate Transparency Act

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Tax News You Can Use | For Professional Advisors

 

Jane G. Ditelberg

Jane G. Ditelberg

Director of Tax Planning, The Northern Trust Institute

On March 1, 2024, a Federal District Court in Alabama held that the Corporate Transparency Act’s beneficial owner identification disclosure provision was unconstitutional in National Small Business United et al v. Yellen et al.1 Here are some important points from the opinion:

  • The court’s conclusion that the statute was unconstitutional was based on the argument that the process of incorporating businesses is reserved to the states and that adding this registration requirement when an entity was formed under state rules was not a power granted by the federal government. Additionally, the power to impose this requirement was not necessary to implement the federal government’s powers over foreign policy, tax or interstate commerce.
  • The court held that while the specific rule at issue in this case was unconstitutional, the government easily could have adopted a rule that would pass constitutional muster and provide it with similar information.
  • The court held that the requirement could not be enforced against the specific plaintiffs in the case. It did not hold that it could not be enforced against anyone else.
  • The Financial Crimes Enforcement Network (FinCen), a branch of the U.S. Department of Treasury charged with enforcing the CTA, posted a notice on its website that in light of the case, it would not seek to enforce the rule against the specific individual plaintiff or existing members of the trade association plaintiff, but that all other parties are still required to file as provided in the statute.
  • This is not the last word. The government is appealing the decision to the U.S. District Court of Appeals for the 11th Circuit. In addition, other similar suits may be brought by others in different jurisdictions. In the event there are contradictory rulings by different federal courts, the United States Supreme Court could ultimately decide the case.
  • For entitles formed before January 1, 2024, the requirement is to register by the end of the year. Those who fall in this category may wish to defer registration until later in the year to see if there are any further developments.
  • For entities formed in 2025, the deadline is 90 days after formation. To avoid penalties, entities should comply with the statute as enacted if they do not plan to seek their own judicial determination.
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  1. National Small Business United et al v. Yellen et al, No. 5:2022cv01448 - Document 51 (N.D. Ala. 2024)

Disclosures

© 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

The information contained herein, including any information regarding specific investment products or strategies, is provided for informational and/or illustrative purposes only, and is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any investment transaction, product or strategy. Past performance is no guarantee of future results. All material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.

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