On January 1, 2024, regulations implementing the Corporate Transparency Act (“CTA”) became effective, triggering new reporting obligations for many entities conducting business within the United States. The Final Rule, published by the Financial Crimes Enforcement Network (“FinCEN”) on September 30, 2022, was challenged just six weeks later when Plaintiffs Isaac Winkles and the National Small Business Association (“NSBA”) filed suit in the United States District Court for the Northern District of Alabama alleging that Congress lacked authority under the Constitution to enact the CTA’s mandatory disclosure requirements.[1] On March 1, 2024, the U.S. District Court granted Plaintiffs’ motion for summary judgment, declaring the CTA to be unconstitutional, and enjoining enforcement of the CTA against the Plaintiffs.

Although the District Court decided NSBA v. Yellen on the broad concept of Congress’ constitutional authority, the actual impact of this decision is extremely narrow. The decision in NSBA v. Yellen is limited specifically to Plaintiffs, and the approximately 65,000 businesses and entrepreneur members of the NSBA. To that end, on March 4, 2024 FinCEN released a notice indicating that although it will comply with the U.S. District Court’s order as to the Plaintiffs, and the NSBA membership as it existed on March 1, 2024, all other business entities which qualify as a reporting company under the CTA must still file the required beneficial ownership reports with FinCEN.

Under the FinCEN adopted regulations, codified in 31 CFR §1010.380, business entities that do not qualify for one of 23 enumerated exemptions are required to file reports with FinCEN, which include details concerning the business entity itself, as well as sensitive personal information of each beneficial owner of the entity (“BOI Reports”).[2] For business entities formed in calendar year 2024, BOI Reports must be filed within 90 days of formation.[3] For business entities existing prior to January 1, 2024, BOI reports must be filed by January 1, 2025.

Congress has indicated that the spirit behind the CTA is to prevent financial crimes, such as money laundering and tax evasion, and that the policy goal fits within its broad powers to regulate commerce, oversee foreign affairs and national security and impose taxes and related regulations. In granting Plaintiffs motion for summary judgment in NSBA v. Yellen, the U.S. District Court fundamentally disagreed with Congress’ statement of authority, finding 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 or proper means of achieving Congress’ policy goals.”[4]

The Justice Department, on behalf of the U.S. Department of the Treasury, filed a Notice of Appeal on March 11, 2024 in the U.S. Court of Appeals for the Eleventh Circuit. Dinsmore will continue to monitor NSBA v. Yellen, and will provide a supplemental update following the decision by the Eleventh Circuit Court of Appeals. 

[1] National Small Business Association, et al. v. Yellen, No. 5:22-cv-01448 (N.D. Ala.).

[2] Beneficial owners must provide FinCEN their full legal name, date of birth, current address, an identification number from a driver’s license, ID card, or passport, as well as an image of the identifying document.

[3] On November 30, 2023, FinCEN published a rule amending 31 CFR §1010.380 to extend the reporting deadline for entities formed after January 1, 2024 from 30 days to 90 days.

[4] National Small Business Association, et al. v. Yellen, No. 5:22-cv-01448 at 3 (N.D. Ala.).