A federal judge has suspended the Corporate Transparency Act and its beneficial ownership reporting requirement, but only for some small businesses.
In a
In a lawsuit filed in 2022, the NSBA contended that the CTA unfairly burdens small businesses by requiring them to divulge "highly personal" details to Treasury's Financial Crimes Enforcement Network, or FinCEN. In addition, the NSBA argued that small businesses could face average costs of $8,000 in the first year of compliance (per court filings).
What it means
At first glance, the summary judgment could be read as banning the Treasury and any other agency of the federal government from enforcing the CTA. However, the court's ruling prohibits CTA enforcement only against the NSBA itself and all of its members.
FinCEN made its interpretation of the ruling clear in a statement issued late Monday, stating that the ruling applies to the plaintiffs, "Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)." As such, those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.
The March 1 judgment applies to 0.1%-0.2% of the small-business owners that FinCEN estimates are impacted by the BOI filing requirement.
The ban on the CTA's enforcement is limited to the NSBA and its 60,000-plus members — an estimated 40% of whom will be exempt from filing beneficial ownership information reports in any case, due to falling under one of the 23 named exemptions or the large-entity filing exemption. It appears that no more than 40,000 small businesses will be affected by the ruling, compared to the over 30 million small businesses that FinCEN estimates will be required to file BOI reports in 2024.
Given the narrow nature of this summary judgment, unless the Treasury Department suspends enforcement of CTA for all of the more than 30 million businesses that are obligated to file, CTA BOI reports will need to be filed by all of those tens of millions of businesses except for the less than 65,000 NSBA members to which the decision applies.
What happens next in court
As of now, there have been no public announcements regarding next steps. However, in conversations with two Treasury Department officials, it was made clear that the decision will be appealed and a stay of judgment request will be filed with the district court.
- Stay of judgment: If the Treasury does appeal the district court's decision to the Eleventh Circuit Court of Appeals, it will also most likely request a stay of judgment while the appeal is processing. A stay of judgment is exactly what it sounds like — the decision is paused or "stayed" for a specific period of time, usually while the appeal process takes place. If the Treasury applies for a stay, and it is granted, the district court's order to cease enforcement of the CTA against the NSBA and its members would be lifted. If the stay isn't granted at the district court level, the Treasury will likely appeal that decision to the Eleventh Circuit Court of Appeals.
- Appeal the decision: The Treasury is expected to appeal the summary judgment in its entirety to the Eleventh Circuit Appeals Court. The appeals court would then likely consider the district court's decision on its merits. Keep in mind that the district court did not consider the facts of the case, but instead issued a summary judgment ruling on the law.
No matter how the Eleventh Circuit Court of Appeals rules, this case is likely to ultimately end up being presented to the U.S. Supreme Court.
What this means for small businesses
Not much has changed for most small businesses. The summary judgment applies to somewhere between 0.1%-0.2% of the over 30 million firms that FinCEN estimates will be required to file initial BOI reports in 2024, based on the NSBA's membership as of March 1, 2024.
As of this article's publication date, no other lawsuits against the CTA are in progress. While multiple organizations — such as the American Institute of CPAs, the American Bar Association and the American Bankers Association — have all written letters requesting a year's delay in CTA enforcement, none have stated an interest in bringing a suit. Likewise, neither Congress nor the Treasury has entertained a delay beyond Jan. 1, 2024.
Given the extremely limited reach of the ruling, it's doubtful that the Treasury and FinCEN will issue guidance universally suspending CTA enforcement while the appeals process plays out, beyond the FinCEN statement issued on March 4, 2024.
Many believe that all reporting companies facing CTA deadlines should seriously consider filing, even if the federal district court's ruling covers them. Businesses that fail to file in time to meet their CTA deadlines are betting on the NSBA prevailing in the courts. Meanwhile, if the Treasury prevails, these businesses will potentially face significant civil fines, interest and penalties, as well as possible criminal penalties, including jail time. Choosing to file means potentially losing their filing fees and any cost incurred if they decide to use an advisor. However, filing provides peace of mind — staying in CTA compliance means there's little chance of facing more stringent financial and criminal penalties for failure to file.
What this means for accounting firms
At this time, businesses required to file BOI reports under the CTA aren't affected by the summary judgment unless they were current NSBA members as of March 1, 2024.
However, expect an influx of client inquiries about the CTA and BOI reporting. The BOI reporting requirements have not been widely covered in mainstream media until now. CPAs should be prepared to field questions from clients about the CTA and provide advisory and compliance services if they choose.
Accounting firms should take note of the potential risks they face in providing guidance and compliance services for CTA matters. They will need to issue separate engagement letters using specific language to ensure professional insurance coverage for the provision of CTA BOI reporting services. See more details in
What's next
Right now, it's a game of "hurry up and wait" — waiting for the appeals process to run its course, waiting for any additional regulatory guidance following this decision, waiting to see if Congress chooses to act. To be clear, congressional action is unlikely at this time, given the laundry list of other items facing legislators, the fact that this is an election year, and Congress' unwillingness to do anything regarding CTA until now. However, the mass media and social media attention that CTA and BOI reporting is now getting as the result of the ruling in this case could create something of a groundswell to move Congress and/or the Treasury to action.
Clearly, this all remains a moving target, and developments should be monitored closely.
