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  • Writer's pictureRic Armstrong

Texas Lawsuit Challenges the Corporate Transparency Act

The National Federation of Independent Business (NFIB) has filed a lawsuit against the U.S. Government in the United States District Court for the Eastern District of Texas challenging the Corporate Transparency Act (CTA) and beneficial ownership reporting requirements.

The Corporate Transparency Act (CTA) went into effect on Jan. 1, 2024. It is “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States,” according to the U.S. Department of the Treasury and its Financial Crimes Enforcement Network (FinCEN) bureau

Commenting on the lawsuit, Beth Milito, Executive Director of NFIB’s Small Business Legal Center states that, “The Corporate Transparency Act created one of the largest reporting requirements for small businesses. Small businesses are at risk of being subjected to civil and criminal penalties for simple paperwork violations and must give every level of the government access to private and sometimes confidential information of millions of small business owners. The CTA is unconstitutional, and we ask the Court to prohibit the Treasury Department and FinCEN from enforcing the Act and beneficial ownership requirements.”

A key provision of the Act is that all affected companies must identify every individual who qualifies as a beneficial owner including their full legal name, date of birth, current residential address (or business address for a company applicant if in the business of forming entities), and an ‘identifying number’ and ‘image’ from documents like a U.S. passport, U.S. driver’s license, U.S. identification card or, if no U.S.-issued document is available, a foreign passport.

A beneficial owner, as defined as an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.

The lawsuit argues that the CTA exceeds Congress’s authority over the states, that it improperly compels speech and burdens associations, that it unconstitutionally compels disclosure of private information, and that the reporting rule is not in accordance with the law.

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