In a previous post, I wrote about the Corporate Transparency Act, which is a new rule from the Treasury Department that requires many businesses to report their beneficial owners to the government by the end of 2024. Those who don’t comply could face fines of up to $10,000.
Since then, a federal judge in Alabama ruled that the Corporate Transparency Act is unconstitutional. The ruling has created a lot of confusion. Does this mean that your business is no longer required to disclose its beneficial owners to the Treasury? The answer is that most eligible businesses still have to comply.
Here are three things you need to know.
1. The ruling only applies to a small number of small businesses.
The judge’s decision came after the National Small Business Association (NSBA)—a trade group representing about 65,000 small business owners—contested the ruling. Because the case was not class action, the Treasury Department has said that it will abide by the judge’s decision only in respect to the members of this group. The Treasury Department will continue to require the remaining 32 million small business entities to report their beneficial ownership.
Is it too late to join the NSBA in order to be excluded from the requirement? Yeah, it is: Only members at the time of the lawsuit are applicable for exemption.
2. The Treasury Department is appealing the Alabama court’s decision.
More than a million small entities have already filed their required reports. Even though the size of the impacted businesses is small relative to the total number of small business entities, it’s clear that the Treasury Department recognizes the ruling’s potential significance and is appealing the decision to the Eleventh U.S. Circuit Court of Appeals.
There is no clear timeline as to when the appeal will be heard by this higher court, but advocates for the rule are making their case for the ruling to be overturned. Some attorneys feel that an ultimate decision won’t come until 2025.
3. More lawsuits are ahead.
A small business association in Michigan has announced litigation challenging the constitutionality of the act. Other lawsuits are sure to follow. There is no clear timeline as to when these lawsuits will be heard in court.
The bottom line is that the Corporate Transparency Act is still very much valid for most entities, other than the ones that are exempt (see list here). If your business entity is not exempt, you should comply with the act this year.
Next Steps: Are you looking to keep up with the latest research and trends? We’ve got you covered with the weekly Small Biz Ahead Newsletter. Sign up today and start receiving the weekly newsletter chock full of the latest tools and resources to help you run a successful business.