In a landmark decision March 1, 2024, a federal judge of the U.S. District Court for the Northern District of Alabama declared the Corporate Transparency Act (CTA) unconstitutional, sparking a wave of uncertainty among business owners, including those managing family enterprises. The ruling in National Small Business United v. Yellin, resulting from a lawsuit filed by individual small business owner Isaac Winkles and the National Small Business United (NSBU), challenges the authority of Congress to enact the CTA under the Interstate Commerce Clause of the Constitution.
The CTA, aimed at enhancing transparency and combating illicit activities, requires businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). With the deadline for compliance looming, the court’s decision raises critical questions for family businesses regarding their reporting obligations.
While the ruling currently applies only to the plaintiffs, Winkles and NSBU, its implications may extend further as the Treasury is expected to appeal the decision to the U.S. Court of Appeals for the 11th Circuit. The appeals process, however, could take several months or even years, leaving businesses in a state of limbo. In the meantime, FinCEN has come out specifically limiting the suspension to the plaintiffs.
For family businesses navigating this uncertain legal landscape, compliance with the reporting requirements remains the prudent course of action. Entities formed in 2024 are required to file an initial report within 90 days of formation, while those established before 2024 have until December 31, 2024, to comply. Failure to meet these deadlines could result in significant fines or criminal penalties.
As the legal battle over the constitutionality of the CTA unfolds, family businesses must stay informed and prepared to adapt to the evolving regulatory environment. The outcome of this case could have lasting impacts on the transparency and regulatory requirements faced by family-owned enterprises across the nation.