On March 1, 2024, the U.S. District Court for the Northern District of Alabama held the Corporate Transparency Act (the “CTA”) to be unconstitutional. The plaintiffs, National Small Business United d/b/a the National Small Business Association (the “NSBA”) and Isaac Winkles, an NSBA member and business owner, had argued that the CTA was not a necessary or proper means of regulating interstate commerce, overseeing foreign affairs, or imposing federal taxation and that it exceeded the scope of Congress’s power to legislate. The court agreed, without considering the plaintiff’s arguments that the CTA violates the First, Fourth, and Fifth Amendments.[1]

Importantly, the holding in this case does not amount to cancellation or suspension of all CTA reporting obligations, previously discussed in detail here and in regard to estate planning here. The district court permanently enjoined enforcement of the CTA only as against the plaintiffs in that case,[2] not as to all companies obligated to report beneficial ownership information under the CTA. The court’s opinion also seems to suggest ways that Congress could amend the current law to “pass constitutional muster.”[3]

In a brief statement, the Financial Crimes Enforcement Network (“FinCEN”) confirmed that it will “comply with the court’s order for as long as it remains in effect.”[4] The Government will likely seek to appeal this ruling to the U.S. Court of Appeals for the Eleventh Circuit. Furthermore, FinCEN very deliberately states that it will not enforce the CTA against the NSBA, members of the NSBA as of the date of the ruling, Isaac Winkles, and any reporting company for which Winkles is a beneficial owner or company applicant. According to FinCEN, those specific plaintiffs “are not required to report beneficial ownership information at this time.”[5] The not-so-subtle subtext of FinCEN’s response seems to be, first, that the Government will seek to reverse this ruling, and second, for all other reporting companies, CTA reporting obligations still stand unless and until the courts say otherwise.

For now, in light of FinCEN’s response and the potential for civil or criminal penalties for willful failure to file or filing false information, the best course of action is continued compliance with the provisions of the CTA. This is especially true for any reporting companies formed on or after January 1, 2024, as those entities have a limited time to report to FinCEN.  

[1] Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448, 2024 U.S. Dist. LEXIS 36025, at *59(N.D. Ala. Mar. 1, 2024)

[2] Id. at *60.

[3] Id. at *36; see also id. at *55.

[4] Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), Financial Crimes Enforcement Network (Mar. 4, 2024), https://www.fincen.gov/news/news-releases/notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448-nd-ala(emphasis added).

[5] Id. (emphasis added).