In a lawsuit filed by the National Small Business Association, The Corporate Transparency Act was dealt a blow when an Alabama court declared that the CTA unfairly burdens small businesses by requiring them to divulge highly personal details to The Financial Crimes Enforcement Network (FinCEN).
What is the CTA and Beneficial Ownership Information Reporting?
BOI reporting requirements were due to start on January 1, 2024 for newly formed entities, with existing entities formed prior to 2024 being required to complete their initial BOI filings by January 1, 2025.
Under the CTA, which was passed by Congress as an anti-money-laundering initiative in 2021, businesses would have been required to provide information about individuals who directly or indirectly control or own at least 25% of a company. Some details that would have been required in the reporting include full legal name, date of birth, current address, an identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and an image from that identification document.
What does the judgement mean for BOI Reporting?
This judgement does not entirely ban the Treasury Department or other federal agencies from enforcing the CTA. This ruling only prohibits CTA enforcement against the National Small Business Association itself and all of its members (current members as of March 1, 2024, estimated at 60,000 small businesses). Given the limited nature of this judgement, unless the Treasury Department suspends the enforcement of the CTA for all businesses that are obligated to file, BOI reports will still need to be filed according to the guidelines, excluding only the National Small Business Association.
FinCEN will comply with the court’s order as long as it remains in effect, however the government is still able to appeal the ruling.
While choosing to submit BOI Reporting might mean potentially losing filing fees if there is a wider judgement down the road, compliance with The Corporate Transparency Act remains the best practice until further notice. Abedian + Totlian will continue to monitor developments.