FinCEN Update
Agricultural businesses have likely heard of the Corporate Transparency Act (CTA). The CTA contains new reporting requirements imposed by the United States Treasury Financial Crimes Enforcement Network (FinCEN) obligating small businesses to divulge all “beneficial owners” that have a 25% ownership interest or more or exercise control in the entity and to keep such information up to date with FinCEN. It aims to prevent financial crimes from being committed by shell corporations but sweeps millions of small family businesses across the country within its scope. For entities existing on or after January 1, 2024, the deadline for reporting is ninety (90) days after the entity is formed. For entities existing prior to January 1, 2024, the deadline for reporting is December 31, 2024. The penalties for failing to do so are onerous.
Recently, all eyes in the legal community turned to a federal district court in Alabama in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.). The plaintiffs in that suit challenged the CTA arguing that the Act violated the United States Constitution because, in enacting the CTA, Congress exceeded its (i) Foreign Affairs Powers, (ii) Commerce Powers, and (iii) Taxing Powers. The Alabama district judge agreed and issued an order preventing the Department of Treasury and FinCEN from taking enforcement action pursuant to the CTA against the plaintiffs. FinCEN issued a statement acknowledging the Court’s ruling, stating that it would not enforce the CTA against the plaintiffs as ordered by the Court.
What does this ruling mean though for every other business required to comply with the CTA’s reporting requirements? Unfortunately, the Court’s ruling was circumscribed only to apply to the plaintiffs before the Alabama Court and FinCEN is only prevented from enforcing the CTA against them. Accordingly, it is imperative that small businesses continue to comply with the Act’s requirements or face potential enforcement action for failing to do so. We will continue to monitor this case and others that are sure to come challenging the CTA. In the meantime, the attorneys at Hazen Law Group, LLC are available to assist clients with ensuring they are following the Corporate Transparency Act’s requirements.
