Plaintiffs: FinCEN should pause all CTA enforcement

The Financial Crimes Enforcement Network (FinCEN) should pause all enforcement of the Corporate Transparency Act (CTA), P.L. 116-283, and its required beneficial ownership information (BOI) reporting until a legal challenge works its way through the courts, plaintiffs who won the first round of the case said Tuesday.

A federal district court in Alabama granted the plaintiffs’ motion for summary judgment in National Small Business United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. 3/1/24), holding that the CTA is unconstitutional. On Monday, FinCEN issued a notice announcing that it will not enforce the BOI requirements against the plaintiffs: the National Small Business Association (NSBA) and its 65,000 members and an Alabama businessman.

The act “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals,” the opinion said.

NSBA leaders and attorneys said in a call Tuesday with reporters that FinCEN’s decision to stop BOI enforcement only for the plaintiffs was disappointing.

Brian Reardon, president of the S Corporation Association, said businesses need clarity from Congress and FinCEN. “If it’s unconstitutional for NSBA members, it should be unconstitutional for … all businesses,” he said.

Under the act, which Congress passed as an anti-money-laundering initiative in 2021, reporting companies, defined as corporations, limited liability companies (LLCs), and similar entities, must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, LLC, or other similar entity.

Reporting companies are required to provide information about both the companies and their beneficial owners and applicants, including full legal name, address, state or tribal jurisdiction of formation, IRS taxpayer identification number, birth date, and other details. Willful violations are punishable by a fine of $591 a day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.

FinCEN, which administers the act, estimates that BOI reporting regulations apply to 32.6 million entities with 5 million added each year through 2034.

Thomas Lee, special counsel, Hughes Hubbard & Reed, said he expects the government to appeal the decision and that the case will end up with the Supreme Court, regardless of who wins at the appellate level.

In a statement Monday, the AICPA said that small businesses should continue to file BOI reports. The statement also said that the AICPA continues to push for suspension of the BOI reporting rule.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.