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Corporate Transparency Act Unconstitutional? (UPDATED)

By Adam Sweet
December 5, 2024
Courtroom

UPDATE, December 27: Yesterday a Fifth Circuit order restored the ban on enforcing the Corporate Transparency Act's beneficial ownership requirements, pending another hearing. More coverage here.

 

UPDATE,  DECEMBER 23, 2024. The Fifth Circult Court of Appeals has reversed the injunction. The filing deadlines are back on. More details here.

 

A U.S. district court judge has ruled that the Corporate Transparency Act (CTA) is “likely unconstitutional” and that the “CTA and its implementing Regulations must be enjoined”.  The December 3 ruling grants a nationwide “preliminary injunction” against enforcement of the CTA.   

The CTA requires entities in existence before 2024 meeting the CTA definition of a “reporting company” to file beneficial ownership disclosures with FinCEN – The Financial Crimes Enforcement Network - by the end of 2024.  New entities have a shorter reporting time frame.   This new district court action introduces considerable uncertainty for any business entity facing a CTA filing deadline, leaving many affected clients wondering whether they still must comply. 

A strict reading of this district court ruling indicates that no entity is presently required to comply with the CTA.  However, the government appears likely to appeal this preliminary injunction to a Circuit Court of Appeals for further consideration.  The outcome of any appeal is unlikely to be determined until next year, so a prudent advisor, for now, may still counsel clients to comply with their CTA filing obligations, pending further developments. Also, this ruling is structured as a “temporary injunction”, meaning it could be lifted by a Court of Appeals or the Supreme Court at any time. 

Clients looking for further advice should consult with their legal counsel.

Additional resources:

The CTA does not directly involve the IRS and no CTA filings are included with any federal or state tax filings.  Consequently, Eide Bailly is not able to specifically assist a client with their CTA filing obligations.

 

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About the Author(s)

Adam Sweet

Adam Sweet, J.D., LL.M.

Principal
Adam leads Eide Bailly's Passthrough Entity Consulting group. He has extensive knowledge in the area of partnership tax, including interpreting partnership agreements, allocation and distribution provisions, and issuing compensatory equity. He is also experienced with both the buying and selling sides of domestic and foreign joint ventures, tax credit partnerships and a variety of IRS controversy matters. Adam also leads Eide Bailly’s Opportunity Zone working group.
509.252.4019

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