Federal court rules law mandating reporting of ‘Beneficial Owner Information’ unconstitutional

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A federal court in Alabama has ruled that the Corporate Transparency Act (CTA) – which mandates reporting of Beneficial Owner Information (BOI) by millions of small businesses – is unconstitutional.

However, the ruling is narrow and applies only to members of the plaintiff organization that brought the suit, National Small Business United. The BOI reporting requirements remain for more than 32 million small businesses nationwide.

In a statement responding to the ruling, the American Institute of Certified Public Accountants said that small businesses should continue to file BOI reports.

The U.S. District Court for the Northern District of Alabama held that the CTA exceeds Congress’s authority, and in a March 1 opinion in National Small Business United v. Yellen granted summary judgment to the small business advocacy group. The decision rejected the government’s arguments that the CTA is a sanctioned exercise of congressional taxing power and commerce clause authority.

The U.S. Department of the Treasury administers the law through its FinCEN unit (Financial Crimes Enforcement Network), has not yet indicated whether the ruling will be appealed. Still, legal commentators expect the decision to be appealed to the 11th Circuit Court of Appeals and potentially overturned.

What Should You Do?

If your company is covered by the CTA’s Beneficial Owner Information reporting requirement, you must comply with the law. If your company existed before January 1, 2024, you have until January 1, 2025, to make your first BOI report to FinCEN. If your company was created after January 1, 2024, you have 90 days from the registration date to comply.

More information is available at FinCEN’s Beneficial Ownership Information web page.

Why Was the CTA Enacted?

Enacted in late 2020, the CTA is intended to help national security, intelligence and law enforcement agencies fight money laundering, the financing of terrorism and other illicit activity, and bring the U.S. into compliance with international anti-money laundering standards. However, the CTA has been criticized for having regulations so broadly written that it will apply to millions of small businesses.

The CTA requires corporations, LLCs, and similar entities to report the identities of “beneficial owners” – persons who own at least 25% of a business or exercise significant control over a company – to FinCEN. The BOI reporting requirement applies only to small businesses with fewer than 20 employees and less than $5 million in annual consolidated gross receipts.

FinCEN estimates that the BOI reporting requirement would affect approximately 32.6 million small businesses.

We will keep you informed of further developments regarding CTA compliance.