ALERT FOR BUSINESS OWNERS: Federal Judge Puts CTA on Hold, but only for some

Cameron Grant

The Business Attorneys at Lyons Gaddis have been advising our clients to take a slow approach to the required Corporate Transparency Act (CTA) filings for existing businesses.  With regulations changing regularly late into 2023, we advised clients to see how the new filing system works once others began filing on a large scale after January 1st.  A recent Federal Court ruling provides an example of the unsettled landscape surrounding the CTA, however, its applicability may be limited.

Business owners and LLC members who have been diligently preparing to file Beneficial Owner Information in compliance with the CTA have taken notice of a recent ruling from the United States District Court in Alabama that hints at possible changes to the regulatory landscape.  For now, the impact is limited to the Plaintiffs in the case, but it is a signal that the issues surrounding the CTA remain unsettled.

In a National Small Business United v. Yellen, 5:22-cv-1448-LCB,(U.S. Dist. Ct. N.D. of Alabama, March 1, 2024), U.S. District Judge Liles C. Burke declared the CTA unconstitutional, however his ruling was narrowly drawn for the benefit of the Plaintiffs, meaning that it does not relieve the rest of businesses from their CTA compliance obligations.

The Financial Crimes Enforcement Network (FinCEN) is the federal agency charged with implementing the CTA.  FinCEN has not yet announced its intentions to address the issues raised in the Memorandum Order and Final Judgment. On March 4, FinCEN did issue a press release which states:

FinCEN will 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.

According to an update from Herrick Lidstone, “everyone else needs to continue to comply with the CTA. People cannot avoid complying by joining the NSBA based on the FinCEN press release because it will only not enforce the CTA and its rules against members of the NSBA as of March 1.”

As we navigate CTA regulations and the uncertainty created by Judge Burke’s ruling, there are several proactive steps business owners can take to safeguard their interests:

  • Stay Informed: Regularly check for updates on the legal status of the CTA and related legislation. Understanding the evolving regulatory environment is crucial for effective business planning.
  • Consult with Legal Experts: Engage with legal counsel to discuss the implications of the ruling on your business and to develop a contingency plan for future compliance needs.
  • Continue to Comply with the CTA: As noted, Judge Burke’s ruling only applies to the Plaintiffs in the case. The vast majority of businesses in the U.S. must continue to comply with the CTA.  See the article by my colleague, Megan Henderson, entitled A Brief Guide to the Federal Corporate Transparency Act – Compliance Required for Small Business Owners to better understand the process.

Attorneys in the Business Transaction Group at Lyons Gaddis are available to advise you in relation to the Corporate Transparency Act and other issues.

The information contained on this blog is intended to be general information only and not legal advice. This blog topic is not intended to be fully comprehensive. For these reasons, we suggest you seek a licensed attorney for legal advice. If you have any questions about the contents of this blog or if you need legal advice regarding your obligations and duties, please contact Lyons Gaddis, P.C. at 303-776-9900.