On Friday March 1, 2024, Judge Liles C. Burke of the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (CTA) is an unconstitutional overreach of Congress's enumerated powers in a summary judgment ruling in the case of NSBA v. Yellen. The court's ruling did not address the plaintiffs' claims under the First, Fourth, and Fifth Amendments and instead granted summary judgment solely on the grounds of violation of Congress' enumerated powers as derived from: 1) Congress' power to regulate national security and foreign policy; 2) Congress' power to regulate interstate commerce; and 3) Congress' power to enact taxes.

The court's ruling is applied narrowly to the plaintiffs in the case: Isaac Winkles, a National Small Business Association (NSBA) member and owner of two small businesses, and the NSBA, comprised of over 65,000 businesses and entrepreneurs located in all 50 states, as an organization. Specifically, the final judgment permanently enjoins the United States, along with any other agency or employee acting on behalf of the United States, from enforcing the CTA against the plaintiffs. The final judgment does not prevent the United States from maintaining its Beneficial Ownership Information (BOI) database nor does it prevent the United States from continuing to enforce the CTA against other individuals and entities not party to this case.

The Department of Justice (DOJ) is likely to appeal this ruling to the 11th Circuit Court of Appeals based in Atlanta, Georgia. In connection with this highly anticipated appeal, the DOJ is also likely to request a stay, or temporary pause, to the district court's ruling both at the district court level and at the appellate court level. Should a stay be granted as to the final judgment against the enforcement of the CTA against the plaintiffs, ongoing reporting obligations would resume for all reporting companies and their respective beneficial owners. The final resolution of this case will likely take many months. In the meantime, the Financial Crimes Enforcement Network of the U.S. Department of Treasury continues to assert the CTA's general applicability to those not covered by this ruling. Presuming the DOJ's requested stay is granted, the CTA will continue to be in effect, along with all of its various reporting obligations and associated reporting timelines.

Although the future of the CTA may appear uncertain, companies and their beneficial owners should continue to be mindful of their ongoing reporting obligations both as they currently exist and may evolve over time. Entities formed on or after January 1, 2024, that do not qualify for one of the 23 available exemptions, must submit their initial BOI reports within 90 days of formation. Entities formed prior to January 1, 2024, that do not qualify for an exemption, have until January 1, 2025, to submit their initial BOI reports. Reporting companies which have already filed an initial report continue to have a duty to file updated reports within 30 days of any change to their beneficial ownership.

We will continue to monitor this case, and its significant implications, as it evolves. Stinson attorneys are available to assist businesses, and their owners and operators, navigate this changing legal landscape while continuing to meet ongoing regulatory requirements.