Corporate Transparency Act

Is the Corporate Transparency Act Unconstitutional?

The Corporate Transparency Act was enacted by Congress as part of the National Defense Authorization Act. The Act comes as part of an effort to thwart financial crimes, specifically anti-money laundering regimes. The Act targets small businesses that have the potential to be shell companies, as these are often used to hide identities and launder money. To that end, the Act establishes reporting requirements for a reporting company, which includes most corporations, limited liability companies, and other entities created or registered to do business in the United States. Although the Act became effective on January 1, 2024, the U.S. District Court for the Northern District of Alabama recently ruled that the Act was unconstitutional. National Small Bus United, d/b/a the Nat’l Small Bus Ass’n v Yellen, No 5:22-cv-1448-LCB, ___ F Supp 4th ___ (ND Ala Mar 1, 2024). At this time, the ruling only applies to current members of National Small Business Association. While this ruling does not remove reporting obligations across the board, it does raise significant concerns about the constitutionality of the Act and the ongoing compliance for reporting entities. The Treasury Department’s Financial Crimes Enforcement Network is expected to appeal the ruling to the Eleventh Circuit Appeals Court.

As of now, any entity that is not currently a member of the National Small Business Association or not otherwise exempt from the Act must still file a report within the timeline outlined below.

• Formation prior to January 1, 2024 – report due by January 1, 2025;
• Formation between January 1, 2024 and December 31, 2024 – report due ninety (90) days after formation;
• Formation after January 1, 2025 – report due thirty (30) days after formation.
   

See Section C.2. of the following link BOI FAQs Q&A for a list of the entities exempt from the Act. Failure to comply may result in a fine of $10,000 and/or imprisonment for two years. If you wish to discuss the Act and its applicability to your company, please reach out to our office at (269) 492-1040.