A federal court has ruled that the Corporate Transparency Act (CTA) violates the Fourth Amendment.
SBAM Wins Lawsuit
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is a U.S. federal law that originally went into effect on January 1, 2024 but has seen multiple challenges in court. Current guidance is that filing is not necessary.
This law was intended to create a new beneficial ownership information reporting requirement as part of efforts to make it harder for bad actors to hide.
Under the CTA, small businesses would be required to report sensitive personal information on owners and some employees to FinCen (the Financial Crimes Enforcement Network which is part of the Internal Revenue Service) such as social security number, driver’s license, passport number and home address. “Beneficial Owners” refers to all individuals who own or have substantial control in that business. Businesses must keep this filing updated within 30 days of any changes of ownership or previously reported information pertaining to a “beneficial owner.” The penalties associated with noncompliance are thousands of dollars in fines and up to two years in federal prison.
Corporate Transparency Act Timeline
January 1, 2024
The Corporate Transparency Act becomes law.
March 1, 2024
On March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act is unconstitutional. Specifically, the court found that enactment of the CTA could not be justified as an exercise of Congress’ enumerated powers set forth in Article I of the Constitution. As a result, the court held that Congress lacked authority to enact the CTA and that the CTA cannot be enforced against the plaintiffs in that litigation.
March 4, 2024
FinCEN issued a statement confirming that it will not enforce the CTA against Winkles, the NSBA or any individual or entity that was a dues-paying member of the NSBA as of March 1, 2024. While this ruling is significant, it does not provide a justification for any other individuals or companies to stop complying with the CTA.
March 26, 2024
The Small Business Association of Michigan filed a lawsuit against the Corporate Transparency Act in the Michigan 4th District Court of Appeals on the grounds that it is unconstitutional. Due to the nature of the ruling in Alabama, we are hopeful that an injunction will be ordered.
April 26, 2024
In a court hearing on Friday, April 26th, a judge stated he did not believe that there would be irreparable damage done by not issuing a preliminary injunction. The case will continue to play out in court. Watch the Monday, April 29th Small Business Briefing for an update from Brian Calley.
May 20, 2024
The Small Business Association of Michigan is party to an amicus brief filed in the 11th Court of Appeals, in support of the plaintiff, the National Small Business Association, in its case vs. the U.S. Department of Treasury. Learn more on SBAM’s Small Business Briefing.
December 3, 2024
A Federal District Court in Texas has issued a nationwide preliminary injunction against the Corporate Transparency Act, finding that the plaintiffs have met the burden of showing the law is a beyond the scope of the authority of Congress. In other words, the passage of the law relied on an excessively broad interpretation of the Commerce Clause in the Constitution. This action comes just weeks ahead of a looming deadline of 12/31/2024 when millions of small businesses would have had to make their first filing.
December 16, 2024
Judge Jonker heard oral arguments regarding SBAM’s lawsuit. Judge Jonker noted that the CTA is an “incredibly burdensome law” that imposes “massive costs on small businesses.” He also seemed to imply that the CTA is designed to get around traditional Fourth Amendment protections, such as having to get a subpoena.
December 23, 2024
The Federal government appealed their case to the 5th Circuit Court of Appeals and were successful in getting a stay on the injunction against enforcement of the Corporate Transparency Act. Translation: The Corporate Transparency Act (CTA) is back on and small businesses are once again required to report beneficial owners to the FinCEN (a part of the IRS) by January 13, 2025.
December 27, 2024
A new panel of judges (the “merits panel”) reviewed the situation and decided to vacate (cancel) the earlier decision that allowed the law to be enforced. This restores the district court’s injunction, meaning the government is once again blocked from enforcing the CTA and Reporting Rule for now.
January 23, 2025
On January 23, 2025 there was an injunction on that law based on a case out of Texas. The injunction (which prevented enforcement of the new law) was appealed to the Supreme Court of the United States and the injunction was lifted.
January 24, 2025
On January 24, 2025 FinCEN’s website states that they will respect a separate injunction on a different case and businesses are not currently required to file.
February 19, 2025
With the February 18, 2025, decision by the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are once again back in effect. For the vast majority of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025. However, FinCEN offered the following in an alert: “Notably, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”
February 28, 2025
FinCEN has reported that it will not be enforcing or issuing fines ahead of publishing an new interim rule.
March 3, 2025
SBAM is victorious in Corporate Transparency Act lawsuit. Federal court strikes down CTA on constitutional grounds.
March 21, 2025
FinCEN issues a new interim final rule, removing beneficial ownership reporting requirements for U.S. companies.
Media Coverage
Commentary: Small businesses deserve support, not roadblocks
Michigan Small Business Group Files Suit Challenging Corporate Transparency Act
CTA Heats Up with New FAQs, Government and Amicus Briefs and New Draft Legislation
Opinion: Corporate Transparency Act an Illegal Burden on Small Business
Treasury Stares Down Another Challenge To CTA After Michigan Plaintiffs File Suit – Forbes
Small business reporting requirement found unconstitutional by Alabama federal judge –
Member Briefing
Recorded April 16, 2024
SBAM President & CEO Brian Calley is joined by attorneys Erik Daly and Andrew Portinga of Miller Johnson for a briefing on the Corporate Transparency Act and an update on SBAM’s legal action.
SBAM’s Legal Action
The Small Business Association of Michigan is taking legal action against the invasive and unconstitutional Corporate Transparency Act.
This is on the heels of a March 1, 2024 ruling by the U.S. District Court for the Northern District of Alabama that held the Corporate Transparency Act is unconstitutional. Subsequently, decisions were issued that the CTA cannot be enforced against the specific plaintiffs (National Small Business Association and its dues-paying members). All other businesses subject to the CTA must still comply.
Key Provisions of the Corporate Transparency Act
Beneficial Ownership Reporting
Companies are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly control a significant ownership interest in the company.
Definition of Beneficial Owner
The CTA defines a beneficial owner as an individual who, directly or indirectly, exercises substantial control over a company or owns or controls at least 25% of the ownership interests of the company.
Reporting Requirements
Companies, including limited liability companies (LLCs), corporations, and similar entities, are obligated to file reports with FinCEN containing information about their beneficial owners. This information is not publicly disclosed but is made available to law enforcement and certain government agencies for investigative purposes.
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