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What is the CTA?

Posted by Jonathan Krems | Mar 14, 2024 | 0 Comments

In this week's Freedom Friday blog and email newsletter, I'm going to talk about a new, and somewhat controversial topic.  In fact, this is the question all my clients need to be asking me, but are not, and I've known about it for a while.  Not only is it an important compliance issue for your small business, especially if you're an LLC, but it is also questionable constitutionally.  In today's Freedom Friday blog and email newsletter, I'm answering the question, “What is the CTA?”

CTA stands for the Corporate Transparency Act.  This is actually a federal law, which was enacted in 2021 as part of the NDAA reauthorization in January of that year.  Yes, unfortunately, Republicans voted for this measure.  However, this measure was passed as another federal way to fight anti-money laundering.  But unfortunately, if you have an LLC right now, or you plan to form an LLC this year (or any other similar business entity), the CTA requires additional reporting requirements to the federal government regarding your LLC or business entity.   Beginning January 1st, 2024, the CTA requires a significant number of companies to file a report with the Financial Crimes Enforcement Network (FinCEN) which provides information about each of the “beneficial owners” of the company, the person(s) responsible for forming the entity if formed after January 1st, 2024, and other information regarding the company's legal name, address, jurisdiction of formation, and taxpayer identification number (TIN).

Entities which were formed before January 1st, 2024, have until January 1st, 2025, to satisfy their respective reporting requirements imposed by the CTA, but entities formed after January 1st, 2024 (and before January 1st, 2025), only have 90 days from the date of their formation to report under the CTA.  Unfortunately, failure to comply can result in criminal penalties of up to $10,000.00 and/or possible imprisonment of up to two (2) years, and civil penalties of up to $500 per day.

However, in light of all of this regulation, there's a second question we're answering today in the Freedom Friday blog and email newsletter.  Is the CTA constitutional?  When I heard about this, and every time I hear about it in a CLE seminar, it seems like a major privacy invasion of the federal government to find out who owns a small LLC.  I'm not the only one concerned.  At least one federal district court has ruled that the CTA is unconstitutional.  On March 1st, 2024, a federal judge in Alabama ruled that the CTA is unconstitutional.  In the case of National Small Business Association v. Yellen, initiated by the National Small Business United, the lawsuit was against the CTA's mandate for small businesses to disclose their beneficial owners to FinCEN.  The judge in this case determined that the CTA “transcends the limits imposed by the Constitution on the legislative branch and lacks a strong connection to any enumerated power to serve as a necessary or appropriate means to achieve Congress' policy objectives.”  This ruling was based on the argument that the CTA goes beyond Congress' legislative authority as outlined in the Constitution.  While the court did not explore the CTA's potential violations of the First, Fourth, and Fifth Amendments, the focus was on Congress surpassing its constitutional limits.  This ruling has suspended the enforcement of the CTA against the plaintiffs, with a subsequent hearing arranged to address the allocation of attorney fees.  This initial triumph for the interests of small businesses could have far-reaching implications, potentially impacting the reporting requirements of many U.S. business entities.

Will the CTA be ruled unconstitutional in Oklahoma?  Only time will tell.  This is a developing story, but if you have any questions about the CTA and its implications for your small business, please feel free to contact me for a free consultation.

Thinking about starting a small business?  Or maybe your business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...


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