Corporate Transparency Act Litigation Update

Under the Corporate Transparency Act (CTA), which took effect January 1, 2024, many business entities, including small limited liability companies (LLCs) and partnerships, are required to file reports with the Treasury Department’s Financial Crime Enforcement Network (FinCEN). In these filings, applicable businesses must disclose important information about their entity. However, recent CTA litigation updates have called into question the constitutionality of these requirements.

What Is the Corporate Transparency Act, and What are the Requirements?

The CTA is a federal law that requires business entities, referred to as reporting companies, to disclose certain information about the company and its owners to FinCEN. Under the CTA, a reporting company is defined as a corporation, LLC, or similar entity that is (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe or (ii) formed under the laws of a foreign country and registered to do business in the United States.^[1] The following information about reporting companies in the United States must be included in the report:^[2]

• the company’s full legal name and any trade name or doing business as (d/b/a) name
• street address of the principal place of business
• jurisdiction where the business was formed
• tax identification number

Additionally, the reporting company must provide the following information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company:^[3][4]

• full legal name
• date of birth
• current residential or business address
• unique identification number from an acceptable identification document or FinCEN identifier

For reporting companies created on or after January 1, 2024, the same information must be provided about the company applicant, who files the creation documents for the reporting entity.^[5]

CTA Litigation UPDATE

National Small Business United v. Yellen

In the first CTA litigation update, on Friday, March 1, 2024, in National Small Business United v. Yellen, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the CTA is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to FinCEN.^[6] The National Small Business Association (NSBA), an Ohio nonprofit organization representing more than 65,000 businesses from all 50 states, and Issac Winkles, an NSBA member and owner of two small businesses, had brought suit against the US Department of the Treasury and Treasury Secretary Janet Yellen, alleging that the mandatory disclosure requirements imposed by the CTA exceeded Congress’s authority under Article I of the US Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments. The US Department of Justice has since filed an appeal of the district court’s decision with the US Court of Appeals for the Eleventh Circuit asserting that the CTA is constitutional.

Boyle v. Yellen

In another CTA litigation update, on March 15, 2024, William Boyle initiated a lawsuit in the US District Court for the District of Maine alleging that the CTA is unconstitutional.^[7] The lawsuit states that Congress exceeded its authority under Article 1 of the Constitution and encroached upon the states’ respective sovereignties in violation of the Ninth and Tenth Amendments and constitutional principles of federalism and retained state sovereignty.^[8]

Small Business Association of Michigan v. Yellen

In a final CTA litigation update, on March 26, 2024, the Small Business Association of Michigan, Chaldean American Chamber of Commerce, Steward Media Group, LLC, Power Connections Co, LLC, Derek Dickow, Semper Real Estate Advisors, LLC, and Timothy A. Eisenbraun, filed a complaint for declaratory judgment and injunctive relief alleging that Congress exceeded its constitutional authority, the CTA amounts to an unreasonable search and seizure, and the CTA is a violation of due process.^[9] In response, the US Department of Justice has filed a brief asserting the constitutionality of the CTA.

Where Do We Go From Here?

With one case decided, two awaiting further proceedings, and other lawsuits being filed, there will be little change for most business owners. The decision in Alabama only applies to the named plaintiffs; anyone not part of that case is still required to comply with CTA requirements. We understand that the landscape is constantly evolving, and we are here to keep you updated so you can comply with all applicable laws. If you have questions about the next steps, book a call.

^[1] 31 U.S.C. § 5336(a)(11).

^[2] 31 C.F.R. § 1010.380(b)(1)(i).

^[3] 31 U.S.C. § 5336(a)(3)(A).

^[4] 31 U.S.C. § 5336(b)(2)(A).

^[5] Id.

^[6] No. 5:22-cv-1448, 2024 WL 899372133, A.F.T.R.2d 2024-885 (N.D. Ala. 2024).

^[7] No. 2:24-cv-00081-LEW (D. Me. 2024), https://www.taxnotes.com/research/federal/court-documents/court-petitions-and-briefs/constitutionality-corporate-transparency-act-challenged-maine/7jb8q.

^[8] Id.

^[9] No. 1:24-cv-314 (D. Mich. 2024), https://www.taxnotes.com/research/federal/court-documents/court-petitions-and-briefs/business-groups-challenge-transparency-act-unconstitutional/7jcm8.