By Kelly M. Arbogast, Esq.

A federal district court in Alabama has ruled that a new federal law imposing certain reporting obligations on businesses is unconstitutional.

On March 1, the U.S. District Court for the Northern District of Alabama struck down the Corporate Transparency Act (“CTA”), 31 U.S.C.A. § 5336, which took effect on January 1. The CTA requires corporations, limited-liability companies and other business entities in the United States to submit information — including their legal and trade names, their principal places of business and the identity of “beneficial owners” —  to the Financial Crimes Enforcement Network (“FinCEN”), the criminal enforcement arm of the U.S. Department of the Treasury.  

The Alabama federal court issued a 53-page memorandum opinion in National Small Bus. United v. Yellen, No 5:22-vs-1448-LCB (N.D. Ala. Mar. 1, 2024), and held that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerator power to be a necessary or proper means of achieving Congress’ policy goals.”

The court found that the CTA unfairly burdens small businesses and American citizens who have not been under suspicion of wrongdoing, and exceeded the limits of Congress’ power under the Constitution.

The court granted summary judgment for the plaintiffs in the case, including the National Small Business Association (“NSBA”), and permanently enjoined the federal government from enforcing the CTA against only the plaintiffs.  The Treasury Department is expected to appeal the ruling to the Eleventh Circuit Court of Appeals.

In a notice issued on March 4, FinCEN took note of the narrow scope of the court’s ruling:  “FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.”

At this time, the district court’s ruling is not binding upon other businesses, including companies in Pennsylvania, that are required to file Beneficial Ownership Information reports.  However, business owners should monitor the changing regulatory landscape by subscribing to Anderson & Labovitz legal updates, and reach out with any questions. 

For more information about how the CTA and this ruling may impact your business, call us at 412-209-3200 or email or to schedule a free, no-obligation consultation.