Last month, a federal district court in Alabama ruled that the Corporate Transparency Act (“CTA”) is unconstitutional.[1] The CTA, which took effect on January 1, 2024, requires an estimated 32 million entities to report personal information about their beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The CTA aims to assist federal law enforcement in combatting money laundering and other financial crimes carried out through anonymous shell companies.

Specifically, on March 1, 2024, the U.S. District Court for the Northern District of Alabama concluded that the CTA exceeds the Constitution’s limits on Congress’s power and enjoined the U.S. Treasury Department and FinCEN from enforcing the CTA against the plaintiffs in that case. The issue before the Court concerned whether Congress has the constitutional power to regulate millions of entities and their owners upon corporate formation under state law. The Court answered in the negative—at least for the plaintiff entities.

The government argued that the CTA falls within Congress’s broad power to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations. However, the Court held that the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary and proper means of achieving Congress’s stated policy goals.

Subsequently, on March 11, 2024, the U.S. Justice Department filed a Notice of Appeal to the U.S. Court of Appeals for the Eleventh Circuit. Following the Eleventh Circuit’s ruling, the case will likely be appealed to the U.S. Supreme Court.

What does this mean for your company?

The Court’s ruling only prevents FinCEN from enforcing the CTA against the plaintiffs in the case. While this litigation is ongoing, FinCEN has indicated that it will continue to implement the CTA while complying with the Court’s order. Companies that were not a member of the National Small Business Association as of March 1, 2024, or a plaintiff in the case should assume that the recent ruling has no effect on its reporting obligations under the CTA.

For existing companies formed prior to January 1, 2024, the deadline to file beneficial owner reports is January 1, 2025. The filing deadline for companies formed on or after January 1, 2024, is 90 days after the company received notice of its formation. For now, companies which are not exempt from the CTA should still assume that they must comply with their respective filing deadline.

Should you have any questions about whether your company is subject to the CTA, please feel free to reach out to us.

[1] National Small Business United, d/b/a the National Small Business Association v. Yellen, No. 22-CV-1448 (N.D. Ala.).