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Alabama Court Rules CTA Unconstitutional – What Small Business Owners Need to Know

It’s only been three months since the Corporate Transparency Act went into effect, requiring most businesses to report ownership information to the federal government. And already, it’s been found unconstitutional in one court. But before you decide against filing your Beneficial Ownership Information (BOI) Report, there’s important information to know about who the ruling affects and what comes next for small business owners.

What is the CTA?

The CTA or Corporate Transparency Act is a federal law requiring U.S. businesses (and foreign entities that do business in the U.S.) to file a BOI Report that includes information about the company and its owners. The law aims to stop money laundering, terrorist funding, and fraud.

Learn more about the BOI Report and the CTA by reading our BOI Report FAQs.

What the Alabama CTA Ruling Means for BOI Reporting

With its March 1 decision in National Small Business United v. Yellen, the Alabama District Court determined that FinCEN—the federal agency that collects BOI Reports—cannot require the case’s plaintiffs to file these reports. The ruling currently impacts about 60,000 business owners.

FinCEN has agreed to uphold the ruling for the time being: “[T]he government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action … Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.” Let’s go over what that means for you.

What does the Alabama ruling change and who does it impact?

For now, the impact of Alabama’s unconstitutional ruling against the CTA is relatively narrow. The plaintiffs excused from filing the BOI Report include:

While FinCEN is not currently requiring these businesses and individuals to file, there is still a chance the government will appeal and pause the ruling. If a pause happens, the above exempt parties will be required to file.

*Note: Thinking of joining up with the NSBA to get out of filing? Think again! Only people who were active members before the March 1, 2024 ruling are exempt from BOI Reporting.

Check out the CTA’s original 23 BOI reporting exemptions.

Is the Corporate Transparency Act unconstitutional?

According to the U.S. District Court for the Northern District of Alabama, it is. The 53-page opinion states that the CTA “… exceeds the Constitution’s limits on the legislative branch[.]” The court found that the federal government can’t control state business formation, interfere with state or intrastate commerce, or cite tax benefits as a reason to collect ownership data.

What’s Next for BOI Reporting?

Now that one court has ruled against the CTA and let upwards of 60,000 business owners off the hook from filing, this paves the way for more businesses and organizations to push back against the CTA. But in the meantime, filing the BOI Report is still a requirement for most businesses. Let Northwest and our legendary Corporate Guides® help you stay compliant with our easy BOI Reporting Service.

*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.

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