Alabama small businesses and nonprofits are no longer required to share ownership information about their companies or risk being subject to civil and criminal financial penalties or imprisonment under a new federal law after a federal judge in Texas on Tuesday placed a nationwide preliminary injunction on the new law.
The new requirement is known as the Corporate Transparency Act that was part of the National Defense Authorization (NDAA) for fiscal year 2021 passed on January 1, 2021, and went into effect on January 1, 2024.
The law doesn’t apply to any entity that (1) employs more than 20 full-time employees, (2) filed a federal income tax return reporting gross receipts exceeding $5 million, and (3) has an operating presence in the United States. Therefore, most of the burden to disclose ownership information to the federal government would’ve fallen on smaller businesses with fewer than 20 full-time employees and $5 million in sales. A list of other narrow exemptions can be found here.
The U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction on Tuesday halting the implementation of the Corporate Transparency Act’s beneficial ownership reporting requirements in their ruling in Texas Top Cop Shop, Inc., et al. v. Garland, et al., a lawsuit brought by the Center for Individual Rights and the National Federation of Independent Businesses (NFIB).
Rosemary Elebash, Alabama’s NFIB state director, told 1819 News on Wednesday the ruling was a “very significant win” for small businesses.
“It’s great. It’s a wonderful decision. This is a huge win. The preliminary injunction is against the whole Corporate Transparency Act and the court questions its constitutionality and, of course, impact on small business. Supposedly, it was to be a safeguard against anti-money laundering. Really, what it would do is just be a huge burden for small business owners who’d have to report. So, if you did not report, the penalties were also very significant,” Elebash said. “So this ruling by the judge essentially says that they’ve overstepped and because he’s done it by the deadline of December 31st then businesses do not have to file. It is huge. We expect there will likely be an appeal, but for right now small businesses do not have to report.”
The Corporate Transparency Act would’ve required almost all organizations registered with states or tribal authorities to file reports containing intrusive, costly, and confidential ownership information with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury no later than January 1, 2025.
The law exempts large corporate entities and financial firms, leaving mostly small businesses and some nonprofit organizations to comply. Failure to comply with Corporate Transparency Act reporting could have resulted in uncapped and unlimited daily civil penalties of up to $500 per day, criminal sanctions of up to $10,000 in fines, and up to two years imprisonment, or both.
“The Constitution nowhere authorizes Congress to engage in indiscriminate surveillance of small businesses and nonprofits by demanding they disclose private records relating to who directly or indirectly controls them,” said Caleb Kruckenberg, the litigation director for the Center for Individual Rights. “As the deadline loomed for businesses to file reports, we are delighted to see that federal Judge Amos Mazzant stopped this unconstitutional intrusion from taking effect.”
To connect with the author of this story or to comment, email caleb.taylor@1819News.com.
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