Notable Developments
- Appeals court sets hearing date
- Yellen grilled by House lawmakers
- New FinCEN guidance expands CTA’s reach
Legal Update
The Eleventh Circuit Court of Appeals announced a hearing in NSBA v Yellen, the case challenging the constitutionality of the CTA, will take place on September 27. While the court is working under an expedited timeline, that date is just three months ahead of the year-end filing deadline for existing entities.
To recap our latest alert, the total number of pending CTA challenges is currently at six nationwide:
- Massachusetts: BECMA et al v Yellen (5/29/2024)
- Texas: NFIB et al v Yellen (5/28/2024)
- Maine: William Boyle v. Yellen (3/15/2024)
- Michigan: Small Business Association of Michigan et al v. Yellen (3/1/2024)
- Ohio: Robert J. Gargasz Co., L.P.A. et al v. Yellen (12/29/2023)
- Alabama (appealed): NSBA et al v. Yellen (11/15/2022)
Regulatory Update (Part 1)
At a House Financial Services Committee hearing last week, Treasury Secretary Janet Yellen pushed back on calls to delay the CTA’s year-end reporting deadline. There were a couple notable interactions, summarized by American Banker:
Rep. Ralph Norman, R-S.C., asked Yellen to consider extending the deadline for compliance with the rule, pointing out that many constituents are likely unaware of the reporting requirement. “These businesses are struggling…your average plumber is not going to a website, and try to find out how to comply with the beneficial ownership,” he said. “Consider extending it.”
“As the Treasury, extend this deadline and work on bipartisan love with us to make sure that our small businesses are taken care of,” said Rep. Zach Nunn, R-Iowa. “My folks back home see a $500 fine per day as not only a gotcha but a very painful impact.”
Yellen also unveiled the latest beneficial ownership submission numbers, revealing a massive compliance gap:
According to Yellen’s update at the hearing, the database has received only about 2.7 million filings so far, only a fraction of the estimated 31 million businesses that must file by the deadline of January 1, 2025.
Finally, the Treasury Secretary commented on the third tranche of regulations – the so-called customer due diligence rule – which have yet to be finalized:
When pressed by [Chairman Patrick] McHenry on finalizing updates to FinCEN’s customer due diligence requirement, Yellen said she estimates a revised rule could come as early as the fourth quarter. “So that’s something we’re working on revising to make sure it’s consistent with the requirements of the corporate Transparency Act and I believe that we’re hoping to get something out this fall,” she said. “We’re engaging right now with other stakeholder agencies to discuss the substance of the proposal, but we want to have a notice that will enable the public to weigh in with their own comments.”
We’re taking Yellen at her word that Treasury will not unilaterally pause the CTA, meaning the more viable path to relief is either through the courts or Congress.
Regulatory Update (Part 2)
As some outlets have recently reported, it appears that new guidance from FinCEN extends the CTA’s reach to include businesses which have been shuttered or otherwise dissolved. Here’s Inc.com:
In particular, this new guidance, which took effect in January, explains that businesses that began and dissolved this year must report their beneficial owners. Additionally, if owners started dissolving their companies in 2023 but didn’t finish until 2024, they too need to submit a BOI report.
“I think there will be tens of thousands of additional companies that are caught in the net here of mandatory reporting,” says David Suny, a corporate attorney at McCormack Suny who is focused on compliance.
The guidance referenced is an update to an FAQ document posted on FinCEN’s website (see sections C.13 and C.14, updated July 8, 2024), and lays out specifics regarding when a dissolved entity still must file a BOI report.
CTA in the News
- Jennifer Martin published a piece in the National Law Review entitled, “The CTA: HOAs Don’t Need That Kind of Transparency”
- Law360 lists NSBA v. Yellen as one of the “Top Cases to Watch in the Second Half of 2024”
- An op-ed in Crain’s New York has some helpful tips for navigating the state’s new LLC Transparency Act
- Last week we shared some handy tips for navigating the CTA. You can access that document here.
- Treasury continues to brand the CTA as a necessary tool in combatting “drug and human trafficking, fraud schemes, elder abuse, ransomware attackers, and other bad actors”