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Court Finds Corporate Transparency Act Unconstitutional, Limits Injunction

Court Finds Corporate Transparency Act Unconstitutional, Limits Injunction

Earlier this month, a federal court judge in Alabama declared the Corporate Transparency Act (CTA) unconstitutional and prohibited the Treasury Department and its Financial Crimes Enforcement Network (FinCEN) from enforcing the CTA against the plaintiffs in the case (National Small Business Association, et al. v. Janet Yellen, et al). While most companies, including ILMA members, remain subject to FinCEN’s regulations, the court’s decision may signal broader relief in the near future.


The CTA became effective on January 1. It requires “reporting companies” to register with FinCEN and disclose their ultimate, natural person beneficial owners. The CTA was enacted to “help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the [U.S.]”

A reporting company is defined as a corporation, a limited liability company or other entity that is:

(1) formed by filing documents with a secretary of state or similar office of a state or Indian tribe or                                  (2) formed under the law of a foreign country and registered to do business in the U.S.

FinCEN has provided an extensive list of entities exempted from that definition, including:

  • Publicly traded companies
  • Public utilities
  • Entities that have more than 20 employees, operate at a physical office in the U.S., and filed federal tax returns demonstrating more than $5 million in gross receipts or sales

Some ILMA member companies are likely to meet this last exemption.

The timing for reporting requirements depends on when a company was formed. For reporting companies formed prior to Jan. 1, 2024, reports must be filed no later than Jan. 1, 2025. For those formed on or after Jan. 1, 2024, reports must be filed within 30 calendar days of when the company receives actual notice that its creation has become effective or when the secretary of state or similar office provides public notice of its formation, whichever is first. FinCEN estimates at least 32 million existing companies will need to file this year to comply with the CTA.

Court Decision

Six weeks after FinCEN issued its final rule, plaintiffs Isaac Winkles and the National Small Business Association (NSBA) sued the Treasury Department and FinCEN in the U.S. District Court for the Northern District of Alabama, alleging that Congress lacked authority under Article I of the Constitution to enact the CTA’s mandatory disclosure requirements, and that those disclosure requirements run afoul of the First, Fourth, Fifth, Ninth and Tenth Amendments.

On March 1, the court issued a final judgment prohibiting FinCEN from enforcing the CTA against the plaintiffs. The court concluded that the CTA regulation was an unconstitutional exercise of congressional power, but it declined to address the plaintiffs’ arguments that the law also ran afoul of the First, Fourth and Fifth Amendments.

Importantly, the court’s judgment applies only the plaintiffs in the case before it. The court’s silence as to any other parties implies that any “reporting company” that is not a member of NSBA as of March 1, 2024, must continue to comply with the CTA and FinCEN regulations.

The decision does not affect New York’s LLC Transparency Act, which requires the disclosure of certain personally identifiable information of beneficial owners of limited liability companies, that is set to take effect on December 21, 2024.


The broader effects of the court’s opinion remain uncertain. On one hand, Congress can remedy the constitutional defects pointed out by the court in its opinion. On the other hand, bills have been introduced in the House and Senate to repeal the CTA.

It is likely that parties across the country will file similar lawsuits seeking a similar result—or a different one based on the First, Fourth and Fifth Amendment challenges not reached by the Alabama court. The U.S. Supreme Court may eventually need to enter the fray.

At this point, the CTA and FinCEN regulations remain in effect for all covered entities aside from the NSBA plaintiffs. Affected ILMA members should watch the possible appeal of the Alabama case and future announcements from FinCEN about how further developments will affect their duty to report. In the meantime, it may be beneficial for affected ILMA members to delay reporting the required ownership information to FinCEN until the end of their applicable reporting period, in case interim guidance is issued.