Federal Court Suspends Corporate Transparency Act Nationwide: What This Means for Small Businesses
A Texas Federal Court entered a preliminary injunction suspending enforcement of the Corporate Transparency Act (CTA) nationwide. The Court held that the CTA was likely unconstitutional and that reporting companies would be irreparably harmed if they were forced to comply.
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) previously became effective on January 1, 2024 and its requirements covered over 32 million small businesses. Pursuant to the CTA most small businesses must file information disclosing information and identities of owners of those small businesses with the Financial Crimes Enforcement Network (“FinCEN”).
The CTA is part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
Not complying with the CTA, providing false or fraudulent reports, or willfully failing to comply would have resulted in fines of $500 a day for as long as the report is inaccurate, and that is just the civil penalty. Failure to comply may also have been subject to criminal penalties up to a $10,000 fine or two years in jail.
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What does this mean for business owners?
The January 1, 2025 compliance deadline is no longer in effect for reporting companies formed or registered prior to January 1, 2024. However, the court decision does not specifically address the compliance deadline for reporting companies formed or registered on or after January 1, 2024, so it is unclear whether or not they would be penalized for not meeting the deadline if the enforcement of the CTA is not permanently suspended.
The Court did not make a final decision that the CTA is unconstitutional, only that it is likely unconstitutional. This Court’s decision will likely not be the final word on the CTA’s enforceability.
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