- March 11, 2024
- Alerts
Federal District Court Declares Corporate Transparency Act Unconstitutional
On March 1, 2024, the United States District Court for the Northern District of Alabama declared the Corporate Transparency Act (CTA) unconstitutional, pursuant to an action brought by the National Small Business Association (NSBA) and its members against Janet Yellen, in her official capacity as the Secretary of the Treasury (Government).
The CTA, enacted in 2021, directs the United States Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) to establish a database and collect information from “Reporting Companies” operating within the United States in an effort to combat tax evasion and fraud, money laundering, and the abuse of shell companies.
Plaintiffs in the case National Small Business United v. Yellen, No. 5:22-cv-01448 sought a permanent injunction against the enforcement of FinCEN’s reporting requirements, arguing that the Government exceeded its constitutional authority by implementing the CTA. The court granted Plaintiffs’ Motion for Summary Judgment and agreed that the CTA is outside the scope of the Government’s authority because it “lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress' policy goals.” The court ruled that the CTA is not enforceable against the members of the NSBA.
So long as this decision stands, FinCEN is complying[1] with the court’s ruling and is not enforcing the CTA’s requirements against the Plaintiffs, whose membership includes approximately 65,000 small businesses. All other entities who are considered Reporting Companies and individuals who are considered “Beneficial Owners” presently remain required to comply with the CTA and provide their beneficial ownership information reports (BOI Reports) to FinCEN. The Government will likely appeal this decision to the United States Court of Appeals for the Eleventh Circuit in the coming weeks.
Until this matter is finally resolved, all Reporting Companies (other than NSBA members) and their Beneficial Owners should continue to comply with the CTA. Reporting Companies formed on/after January 1, 2024 have ninety (90) days to submit their BOI Reports after official notice of the entity’s formation, and all Reporting Companies in existence prior to January 1, 2024 must submit BOI Reports by January 1, 2025.
Should you have any questions regarding the above, please contact the Garfunkel Wild FinCEN Committee at FinCENCommittee@garfunkelwild.com, the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.
The CTA, enacted in 2021, directs the United States Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) to establish a database and collect information from “Reporting Companies” operating within the United States in an effort to combat tax evasion and fraud, money laundering, and the abuse of shell companies.
Plaintiffs in the case National Small Business United v. Yellen, No. 5:22-cv-01448 sought a permanent injunction against the enforcement of FinCEN’s reporting requirements, arguing that the Government exceeded its constitutional authority by implementing the CTA. The court granted Plaintiffs’ Motion for Summary Judgment and agreed that the CTA is outside the scope of the Government’s authority because it “lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress' policy goals.” The court ruled that the CTA is not enforceable against the members of the NSBA.
So long as this decision stands, FinCEN is complying[1] with the court’s ruling and is not enforcing the CTA’s requirements against the Plaintiffs, whose membership includes approximately 65,000 small businesses. All other entities who are considered Reporting Companies and individuals who are considered “Beneficial Owners” presently remain required to comply with the CTA and provide their beneficial ownership information reports (BOI Reports) to FinCEN. The Government will likely appeal this decision to the United States Court of Appeals for the Eleventh Circuit in the coming weeks.
Until this matter is finally resolved, all Reporting Companies (other than NSBA members) and their Beneficial Owners should continue to comply with the CTA. Reporting Companies formed on/after January 1, 2024 have ninety (90) days to submit their BOI Reports after official notice of the entity’s formation, and all Reporting Companies in existence prior to January 1, 2024 must submit BOI Reports by January 1, 2025.
Should you have any questions regarding the above, please contact the Garfunkel Wild FinCEN Committee at FinCENCommittee@garfunkelwild.com, the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.