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Judge’s March 1 Ruling Finds Corporate Transparency Act Is Unconstitutional: Implications for Biz Av

A federal judge struck down the Corporate Transparency Act on Friday, March 1st.

(Huntsville, Alabama) In a ruling issued on Friday, March 1, 2024, Judge Liles C. Burke of the U.S. District Court in Huntsville, Alabama struck down the 2021 Corporate Transparency Act, ruling that the United States’ Treasury Department cannot require some small businesses to report personal details about their owners – and thereby relieving business jet owners, many of whom maintain ownership structures involving multiple entities in the ownership and operation of each aircraft, of the compliance burden associated with the former law, according to HCH Legal Founding Member Greg Cirilllo.

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Photo of the U.S. Treasury Department building courtesy of the Fraser Blog, a Fraser Trebilcock publication.

The CTA would have, as of 2024, required the disclosure of most stakeholders in legal entities – including LLCs and corporations – to the Treasury Department’s enforcement arm.

“The wisdom of a policy is no guarantee of its constitutionality,” wrote Judge Liles Burke in his opinion. In laymen’s terms: while the Treasury may be well-intentioned in its espousal of the CTA in efforts to crack down on money laundering, that doesn’t necessarily make the CTA a proper exercise of Congress’s power to impose taxes, regulate commerce and protect national security.

Specifically, Judge Burke’s ruling prevented the Treasury Department from enforcing the ownership reporting requirements on the plaintiff in the Alabama case, the National Small Business Association, a nonprofit trade group that represents more than 65,000 member companies.

Per the opinion of The Wall Street Journal’s Editorial Board, published today (Mar. 6) at 5:27pm: “The 2021 Corporate Transparency Act (CTA) requires entities incorporated under state law to report personal information to the Treasury Department. The law was designed to target the use of shell corporations, which can be used to disguise ownership in criminal activity. It was also set to ensnare millions without evidence of illegal acts.”

According to The New York Times, lawyers who have followed the Alabama case agree that the Justice Department will almost certainly appeal the Alabama case to the circuit court.

Cirllo remarked that “the Government will appeal, and based on the way the court ruled, there’s a good chance this gets overturned. This ruling is very unlikely to kill the CTA or even delay its effective date. But lots of folks wish otherwise.”

As it stood previously, the CTA would have required that every active business in the United States comply with its regulations by the end of the year.

“Compliance is not a difficult process initially, but we anticipate rampant accidental noncompliance with the requirement that the data be updated if ownership or other factors change,” Cirillo said. “The statutory penalties are no joke: $500 per day and up to two years in prison. It’s hard to imagine the Financial Crimes Enforcement Network (FinCEN) putting people in jail because they failed to report that ownership in a small business had changed, but nobody wants to be made the example.”

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The CTA would have a number of direct effects on business aviation, including new compliance requirements and the likely push toward trust entities by aircraft owners seeking to maintain the confidentiality of ownership details. That said, this is an awesome and unrelated photo of a Boeing Business Jet in flight courtesy of Boeing.

Cirllo explained that the enactment of the CTA would have the following direct effects on business aviation:

  • (1) Basic compliance burdens, given that business jet ownership structures often involve multiple entities involved in the ownership and operation of aircraft.
  • (2) The CTA does not require reporting by many forms of trusts, so enactment would likely push those aircraft owners seeking to keep their ownership details confidential into trust structures.

Notwithstanding the aforementioned likely new interest in trust structures, FiinCEN is obligated to keep all information reported via the CTA in a “confidential, secure, and non-public database,” Cirillo explained. “But the information can be requested by financial institutions as well as federal, state and local agencies, so it might be something that can be accessed and misused or leaked.”

In a blog post published in November of 2023, the law firm Fraser Trebilcock provides a "how to" guide to streamline reporting requirements associated with the Corporate Transparency Act via FinCEN Identifiers; the blog post can be found here.