A little over a week ago (in early March, 2024), small businesses across the United States were rejoicing upon hearing the news that a federal judge in the Northern District of Alabama, in a case brought by the National Small Business Association and Isaac Winkles, a member of the NSBA, had ruled that the Corporate Transparency Act (CTA), which became effective January 1, 2024, was unconstitutional. A few days later, the judge clarified his decision saying that his decision only applied to the parties in the case before him. If you were a member of the NSBA as of March 2024, then you were free from the burdens of filing under the CTA. If you were not a member of that organization at the time the lawsuit was filed, then it does not apply to you.

The Department of Justice issued a warning stating that they believe the law is constitutional, and we anticipate that they will appeal the decision to the 11th District Court of Appeals. I think it will then make its way to the Supreme Court where it will be decided in a 6-3 or 5-4 decision that it is unconstitutional. That is speculation on my part, however.

In the meantime, small business owners who are not members of the NSBA need to comply with the CTA, particularly for entities that are formed in 2024. The 90-day rule applies. If you are like me and have formed some entities this year, you need to make sure you file within that 90-day period from when you were approved to do business by the Secretary of State or tribal authority.

I see this as something similar to the covid eviction moratorium which was initially enacted by the CDC with congressional approval and later extended by executive order. I believe we will see multiple decisions across this nation in which other organizations copy and paste the brilliant arguments from the norther district of Alabama and seek to get the same result, creating a wave of cases that will ultimately have to be decided by the U.S. Supreme Court.

While waiting for all this to play out, I expect the Department of Justice and FinCEN to be very strict with how they interpret the holding in that case and any subsequent cases and how they hold small businesses to this overreaching information grab. If you have any questions about what is required, I suggest you seek counsel from your local business attorney regarding what you need to do to comply with the CTA.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.