Federal District Court Finds Corporate Transparency Act to be Unconstitutional

On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (the “CTA”) was unconstitutional. As we reported in our prior Sidebar article [https://www.pooleshaffery.com/articles/?Article=1976], the CTA requires many business entities to disclose their individual beneficial owners as part of a federal database aimed at exposing illegal activities including money laundering and concealment of illicit funds. Business entities formed in 2024 are required to report this information to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) within 90 days of organization, while business entities formed prior to 2024 are required to report by January 1, 2025.

In National Small Business United, d/b/a the National Small Business Association, et al. v. Yellen, et al., the District Court ruled the CTA unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers in the U.S. Constitution, including the Commerce, Taxing and Necessary and Proper Clauses, along with its foreign affairs and national security powers. Accordingly, the District Court granted the plaintiffs’ motion for summary judgment and enjoined the government from enforcing the CTA on the plaintiffs; however, the District Court did not issue a national injunction against enforcement of the CTA.

On March 11, 2024, the government filed a notice of appeal of the District Court’s ruling. On the same day, FinCEN issued a statement that it would continue to implement the CTA while complying with the District Court’s order as to the plaintiffs. Thus, the CTA’s reporting requirements remain in effect for all other reporting companies.

Reports are to be filed through FinCEN’s Beneficial Ownership Information page at www.fincen.gov/boi. Depending upon the type of business entity, making this filing may require some prior research and paperwork. If you have any questions or need information to file your reports, the attorneys at Poole Shaffery would be happy to assist you.