Challenges to the Corporate Transparency Act Continue: Now What?

06.17.24

By David H. Freedman and Jordan M. Small

Court Cases Challenging the CTA

There are now six different cases pending in the federal court system challenging the constitutionality of the Corporate Transparency Act (CTA).

A brief overview of each case follows. While the Texas lawsuit and the Massachusetts lawsuit seek to challenge the CTA as applied to all non-exempt reporting companies that are required to comply with the law, the other cases only seek to benefit the Plaintiffs in those matters.

1. Alabama – Complaint Filed November 15, 2022 – National Small Business United, et al. v. Yellen, et al., United States District Court, Northern District of Alabama, Case No. 5:22-cv-01448-LCB.

Plaintiffs have challenged the enforcement of the CTA on constitutional grounds. On March 1, 2024, based on Plaintiffs’ motion for summary judgment, the court entered an order declaring the CTA unconstitutional and permanently enjoining Defendants, along with any other agency or employee acting on behalf of the United States, from enforcing the CTA against Plaintiffs. The order only applies to Plaintiffs in the Alabama litigation. FinCEN issued a notice on March 1, 2024, regarding its enforcement of the CTA, stating that Defendants were appealing the ruling and confirming that it would continue to enforce the CTA against any reporting company not covered by the court’s order.

On March 11, 2024, Defendants appealed the ruling to the United States Court of Appeals for the Eleventh Circuit, Appeal No. 24-10736, where it is currently pending. On June 3, 2024, the U.S. Department of Treasury filed a reply in the appeal pushing back against efforts to dissolve the CTA. The Treasury Department has faced additional pressure and scrutiny, with more than 20 states filing a joint amicus brief, asserting that the CTA displaces state authority and would economically harm residents.

2. Ohio – Complaint Filed December 29, 2023 – Robert J. Gargasz Co. LPA, et al. v. Janet Yellen, et al., United States District Court, Northern District of Ohio, Case No. 1:23-cv-02468-CEF.

Plaintiffs have challenged the enforcement of the CTA on constitutional grounds. Upon a motion by Defendants, on April 17, 2024, the court entered an order staying the proceedings pending the outcome of the Eleventh Circuit appeal in the Alabama lawsuit.

3. Maine – Complaint Filed March 15, 2024 – William Boyle v. Janet Yellen, et al., United States District Court, District of Massachusetts, Case No. 2:24-cv-00081-LEW.

Plaintiff objected to being forced to comply with the CTA as an unconstitutional encroachment on the sovereignty of the State of Maine to regulate entity formation. The parties intend to file cross-motions for summary judgment and a briefing schedule is in place with respect to such cross-motions (the last responsive pleading date is August 23, 2024).

4. Michigan – Complaint Filed March 26, 2024 – Small Business Association of Michigan, et al. v. Yellen, et al., United States District Court, Western District of Michigan, Case No. 1:24-cv-00314-RJJ-SJB.

Plaintiffs have challenged the enforcement of the CTA on constitutional grounds. Plaintiffs filed a motion for preliminary injunction seeking to prevent Defendants and any other agency or employee acting on behalf of the United States from enforcing the CTA against Plaintiffs and its members. On April 26, 2024, the court issued an order denying Plaintiffs’ motion for preliminary injunction. On May 31, 2024, Plaintiffs filed a motion for summary judgment. The court established a briefing schedule for Defendants’ response and cross-motion for summary judgment (the last responsive pleading date is August 9, 2024).

5. Texas – Complaint Filed May 28, 2024 – Texas Top Cop Shop, Inc. et al. v. Merrick Garland, et al., United States District Court for the Eastern District of Texas, Case No. 4:24-cv-00478-ALM.

Plaintiffs are challenging the enforcement of the CTA on constitutional grounds and seek (a) an injunction prohibiting Defendants from enforcing the CTA and the Reporting Rule and (b) a declaratory judgment, invalidating the CTA in its entirety and holding unlawful and setting aside the Reporting Rule. The requested relief goes beyond Plaintiffs in the case to all parties that are currently affected by the reporting requirements of the CTA. On June 3, 2024, Plaintiffs filed a Motion for Preliminary Injunction prohibiting Defendants from enforcing the CTA and its implementing regulations pending further proceedings.

6. Massachusetts – Complaint Filed May 29, 2024 – Black Economic Council of Massachusetts, Inc., et al. v. Janet Yellen, et al., United States District Court, District of Massachusetts, Case No. 1:24-cv-11411-PBS.

Plaintiffs seek to declare the CTA unconstitutional and obtain a permanent injunction, enjoining Defendants and any other agency or employee acting on behalf of Defendants from enforcing any provision of the CTA against any individual or entity. The requested relief goes beyond Plaintiffs in the case to all parties that are currently affected by the reporting requirements of the CTA. There has been no substantive activity on the docket thus far.

Bill Introduced Challenging the CTA

The rollout of the CTA has generated opposition from some business organizations, members of Congress and others, who see the reporting requirements as onerous and intrusive. Representative Warren Davidson (R-OH) introduced House bill (H.R. 8147) on April 29, 2024 to repeal the CTA known as the “Repealing Big Brother Overreach Act” which was followed by Senator Tommy Tuberville (R-AL) introducing Senate bill (S. 4297) on May 9, 2024 to bootstrap onto Senator Davidson’s bill to repeal the CTA. There has been no legislative action on these bills since their introduction.

Bill Introduced to Assist Businesses With the CTA

Representative Zachary Nunn (R-IA) introduced House bill (H.R. 7963) on April 11, 2024 known as the “Small Business Red Tape Relief Act of 2024” to enhance education for small businesses on reporting requirements and ensure accountability through quarterly reports submitted to Congress. There has been no legislative action on this bill since its introduction.

AICPA Involvement

The American Institute of Certified Public Accountants (AICPA) and many state CPA organizations have written to the United States Department of Treasury asking that enforcement of the CTA reporting requirements be suspended until one year after all the court cases have been resolved. The concern is that many small businesses will still potentially be caught off guard with the CTA reporting requirements based on the confusion surrounding the meaning of the court cases and the introduced legislation.

Now What?

Despite the foregoing, it is business as usual for the United States Department of Treasury and FinCEN as it continues to implement and enforce the CTA for everyone not covered by the Alabama decision or one of the 23 statutory exemptions from reporting. When and where these litigation and legislative matters will land are unpredictable. Meanwhile the clock continues to tick on the deadlines for businesses to make their CTA filings.

Maddin Hauser is continuing to recommend that all non-exempt Reporting Companies subject to the CTA continue to timely adhere to the following deadlines and file its Beneficial Ownership Information Report (BOIR):

Existing domestic or foreign Reporting Companies formed before January 1, 2024: On or before January 1, 2025 (one year after the effective date of the CTA).
New domestic or foreign Reporting Companies formed during calendar year 2024: Within 90 days after its date of formation (i.e., the filing date of its Articles or Certificate).
New domestic or foreign Reporting Companies formed on or after January 1, 2025: Within 30 days after its date of formation (i.e., the filing date of its Articles or Certificate).

There are harsh penalties for willfully failing to comply with the CTA, however, FinCEN Director Andrea Gacki recently emphasized to businesses that beneficial ownership reporting under the CTA is not a ‘gotcha’ exercise.

Waiting until the last minute or ignoring the CTA is not a prudent option. It is better to avoid a fire drill and file your BOIR report now than deferring your compliance with the hope of judicial or legislative intervention.

We will continue to follow these developments and provide further updates as they are available on our CTA blog and other social media.