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UPDATE: Corporate Transparency Act reporting requirements unconstitutional per Northern District of Alabama 

3/5/24

By: Travis Knobbe

In late January, we wrote about the new reporting requirements imposed by the Corporate Transparency Act (the “CTA”), effective January 1, 2024. As a reminder, the CTA requires many small businesses to report certain information concerning the beneficial owners of those businesses to the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  

The purpose of the CTA’s requirement was to arm FinCEN with new tools to help fight against financial crimes buried under layers of corporate form. CTA gave FinCEN teeth to enforce the new requirements by imposing civil penalties of up to $500 for each day a non-reporting violation continues and criminal penalties of up to two years of imprisonment and a fine of up to $10,000.00.  

On March 1, 2024, Judge Burke, United States District Judge for the Northern District of Alabama, issued an opinion declaring the reporting requirements under the CTA unconstitutional and enjoining the United States Department of Treasury and its agencies from enforcing those requirements in National Small Business United v. Janet Yellen. By the Order, Judge Burke entered a final declaratory judgment that the “Corporate Transparency Act is unconstitutional because it exceeds the Constitution’s limits on Congress’ power.” The Court also held that the defendants “are permanently enjoined from enforcing the Corporate Transparency Act against the Plaintiffs.” 

This final phrase, “against the Plaintiffs,” has consequence, as the plaintiffs are limited to the National Small Business Association (the “NSBA”) and Isaac Winkles (“Winkles”). Because of the rules concerning standing (a party’s ability to pursue relief in a federal court), the NSBA received associational standing by the presence of Winkles. As a result, it is unclear whether the injunction will apply to enjoin enforcement of the CTA against all members of the NSBA. That said, the injunction does not, by its own terms, apply to businesses outside of the NSBA. 

The decision will almost certainly be the subject of an appeal to the Eleventh Circuit, and the United States will likely seek a stay of the order pending that appeal. FinCEN may also offer its comments about the impact of the ruling to provide guidance to companies and individuals trying to determine whether they must still comply with CTA’s reporting requirements. The decision may also offer a roadmap for similarly situated plaintiffs and organizations to file mirror suits to obtain parallel injunctions across the country. 

Freeman Mathis & Gary will continue to monitor the situation as it develops. For now, however, the ruling applies to a very narrow set of potential individuals (at its broadest, inclusive of all members of the NSBA, and, at its narrowest, inclusive only of Winkles).  

For more information, please contact Travis Knobbe or your local FMG attorney.