After recent actions in federal court, businesses shouldn’t cling to the diminishing hope that legal action will stop implementation of the Corporate Transparency Act—or put off filing deadlines.
Some businesses struggling to meet the looming deadlines under the newly effective federal Corporate Transparency Act (CTA) may be counting on pending lawsuits for relief from filing requirements.
They shouldn’t get their hopes too high.
While courts have heard two challenges to the CTA’s constitutionality in recent weeks, neither case is going to exempt the vast majority of entities from filing the beneficial ownership information (BOI) reports due in most cases by the end of 2024. And longer-term, court activity in these two cases suggests that the CTA will ultimately be upheld.
Rather than clinging to the diminishing hope that CTA will be overturned, managers and counsel should focus on ensuring their entities are making the needed filings. CSC’s full-service framework and industry leading team of experts can prepare and file your BOI reports with the Treasury Department’s Financial Crimes Enforcement Center (FinCEN) to ensure compliance.
Challengers denied in district court
In one of the two cases, Firestone v. Yellen, the trial judge in the U.S. Court for the District of Oregon on September 20 denied the plaintiffs’ motion for a preliminary injunction against CTA’s enforcement. U.S. District Judge Michael H. Simon ruled that the plaintiffs were unlikely to win on the merits of their challenge.
The Firestone plaintiffs contend that Congress exceeded its powers in enacting the CTA, and that the law violates the Constitution’s protections for free speech and against self-incrimination, searches and seizures, and cruel and unusual penalties. Judge Simon ruled the plaintiffs were unlikely to prevail on any of those claims, noting that Congress has broad powers to regulate commerce and to protect against crimes such as money laundering and other economic activities—in line with the intent of the CTA.
This ruling isn’t the final word on Firestone, but it bodes poorly for the plaintiffs’ attempt to overturn the CTA.
Judges skeptical in appeal
Challengers fared better in an Alabama federal court, but ran into judicial skepticism when their case reached the Eleventh Circuit Court of Appeals.
In March, a judge in the U.S. Court for the District of Alabama granted plaintiffs a preliminary injunction in National Small Business United (NSBU) v. Yellen. The order blocked Treasury Secretary Janet Yellen and Treasury’s FinCEN from enforcing CTA against an individual plaintiff and members of NSBU. That judge found that Congress exceeded its powers and interfered with states’ authority over business creation and registration in enacting the CTA.
On September 12, a panel of Eleventh Circuit judges heard oral arguments on Treasury’s appeal of that order. Legal observers said the judges cast doubt on NSBU’s arguments about the limits of Congress’s powers and their claim that CTA imposed illegal searches and seizures. While the district court had ruled that CTA targets a non-commercial function—filing a state registration for a business—the appellate judges seemed receptive to Treasury’s argument that the law’s targets are engaged in business and subject to Congress’s authority over interstate commerce.
No date has been set for a ruling on Treasury’s appeal of the NSBU order. If the panel overturns the order, it will most likely remand the case to the Alabama district court.
No respite from filing
So far, the only practical effect of these two cases has been to relieve roughly 65,000 businesses—firms that were members of NSBU as of the district court’s ruling on March 1—from the CTA’s filing deadline.
For tens of millions of entities—those that were in existence on January 1, 2024, and do not meet one of 23 enumerated exemptions—CTA requires filing BOI reports no later than January 1, 2025. Entities formed on or after January 1, 2024, must file BOI reports with FinCEN within 90 days of formation.
Meanwhile, states are passing their own versions of CTA under their own authority to charter and register business entities. New York’s law, for example, will take effect on January 1, 2026. In states with their own CTA, arguments about Congress’s authority will be rendered moot.
With no immediate legal respite—and clear signs that none is forthcoming—CTA is likely to be here to stay. Business owners, managers, and their counsel need to understand the law and ensure compliance to avoid the substantial penalties that could kick in at year-end.
CSC is here to help. CSC’s comprehensive services and global expertise will help ensure your compliance with FinCEN, preparing and filing your BOI reports. We support clients with extensive resources on the CTA, frequently updated with revised FinCEN guidance and the latest legal developments.
If your company is grappling with this looming deadline, check out our offerings.
