Alabama Federal Court Takes Issue with the Corporate Transparency Act

On March 1, 2024, the federal district court in the Northern District of Alabama made a ruling in the case of National Small Business United v. Yellen. This ruling, if it stands, could impact most small business owners as the subject at issue in the case is the constitutionality of the Corporate Transparency Act (CTA).

The court in Alabama concluded that the CTA exceeded the constitutional limits on Congress’s power. Based thereon the court issued an injunction against enforcement of the reporting requirements under the CTA for the plaintiffs in the case. This decision effectively shields the plaintiffs from the obligations imposed by the Corporate Transparency Act.

The Corporate Transparency Act, enacted to combat money laundering and other illicit financial activities, mandates that certain business entities report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) which is a division of the US Department of Treasury.

It’s crucial to note that this ruling applies only to the specific plaintiffs in the case mentioned above. FinCEN is adhering to the court’s order and will continue to do so unless the injunction is lifted or modified. Consequently, the government is not enforcing the beneficial ownership reporting requirements of the CTA against them.

Because of the limited scope of the ruling, most small businesses continue to be subject to reporting under the CTA. For businesses formed prior to 2024, that means most still have to report their beneficial ownership information to FinCEN on or before December 31, 2024. And for small business formed in 2024, most still have 90 days to report their beneficial ownership information within 90 days of formation.