Montana Lawyer April/May 2024

The State of Affairs of the Corporate Transparency Act

JESSICA OSTERLOH

The Corporate Transparency Act (“CTA”) , enacted as part of the National Defense Authorization Act on January 1, 2021, was intended to expose what Congress described as “malign actors” who seek to conceal illicit financial activities by increasing corporate accountability. Specifically, the CTA allows the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to require “report ing companies” (as defined in the CTA) to report all their individual beneficial owners. The term “benefi cial owner” is broadly defined in the CTA as referring to those individuals meeting either a specific owner ship test or a substantial control test, as those tests are further defined in the CTA. The birth of the CTA inspired states such as New York to enact their own similar State-level filing regime such as the New York LLC Transparency Act. Since the inception of the Act, the CTA has received a plethora of complaints and formal comments regarding its vague guidelines and complicated reporting, plus harsh penalties for inaccurate reporting. In November 2022, the National Small Business Association (“NSBA”) filed a suit in the U.S. District Court for the Northern District of Alabama versus the Secretary of the Treasury stat ing the CTA is unconstitutional. On March 1, 2024, Federal Judge Liles Burke ruled in favor of the NSBA. The recent success of the NSBA has flooded the legal headlines and may cause a domino effect of litiga tion. Following the unconstitutional verdict, the Small Business Association of Michigan (“SBAM”), an affili ate group of the NSBA, filed suit on March 26, 2024. There are four other affiliate groups that the NSBA lists on their website, and it will be interesting to see if any of those organizations follow suit. Here is a brief timeline of the CTA and corresponding events:

18 MONTANA LAWYER

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