Learning Center
We keep you up-to-date on the latest tax changes and news in the industry.
Alabama Federal Court Rules Corporate Transparency Act Unconstitutional
Article Highlights:
Alabama Federal Court Decision
Corporate Transparency Act Purpose
Court Ruled Act Overreached
Implications
Financial Crimes Enforcement Network (FinCEN)
FinCEN March 5, 2024, Announcement
Status of Reporting Pending Appeals by the Treasury Department
In a landmark decision on March 1, 2024, a federal district court in Alabama declared the Corporate Transparency Act (CTA), a piece of legislation aimed at combating money laundering, unconstitutional. The ruling, delivered in the case of National Small Business United et al v. Yellen, No. 5:22-cv-1448-LCB, has sent shockwaves through the legal and business communities, challenging the federal government's efforts to increase transparency in business ownership.
The CTA, enacted as part of a broader anti-money-laundering initiative in 2021, mandates that corporations, limited liability companies (LLCs), and similar entities disclose beneficial ownership information (BOI) to the government. This includes the identities and personal information of the beneficial owners and, for entities formed after January 1, 2024, the identities of the individuals who file applications to create these entities. The legislation was designed to peel back the layers of anonymity often exploited by money launderers and financial criminals, requiring detailed disclosures such as full legal names, addresses, taxpayer identification numbers, and birth dates of the owners and applicants.
However, the federal court in Alabama, presided over by Judge Liles C. Burke, found the act to exceed the constitutional boundaries of legislative power. The court's opinion highlighted that while the goals of the CTA might be "sensible and praiseworthy," the means by which Congress sought to achieve these ends—by regulating millions of entities and their stakeholders based solely on their corporate status—lacked precedent and a sufficient nexus to any enumerated power. In essence, in the court’s view the act overreached, infringing on the rights and freedoms of businesses by imposing undue federal oversight and reporting requirements.
The government had defended the CTA by citing Congress's plenary power to conduct foreign affairs, its authority under the Commerce Clause, and its taxing power as bases for the legislation. However, the court found these arguments unconvincing, ruling that the CTA was not a necessary or proper means of achieving Congress's policy goals within the scope of these powers.
The implications of this ruling are significant. The CTA had imposed stringent penalties for non-compliance, including daily fines and the possibility of imprisonment, measures that the court in its ruling referred to as “severe” and highlighted that penalties could only apply to individuals and not the reporting entities. The Financial Crimes Enforcement Network (FinCEN), tasked with administering the act, estimated that the BOI reporting regulations would apply to over 32 million entities, with an additional 5 million entities added each year through 2034. The ruling, therefore, not only challenges the federal government's approach to combating money laundering but also relieves a substantial regulatory and financial burden from businesses across the United States.
Critics of the CTA have lauded the decision as a victory for small business rights and a check against federal overreach. The National Small Business Association (NSBA), one of the plaintiffs in the case and an organization representing over 65,000 members, has particularly welcomed the ruling. Advocates for the CTA, however, warn that the decision could undermine efforts to combat financial crimes and reduce transparency in the business sector.
This case does not prohibit the Treasury and any other federal government agencies from enforcing the CTA, and only applies to those who challenged the CTA. In response to the court’s ruling, the Financial Crimes Enforcement Network (FinCEN) on March 5, 2024, announced it would pause collecting beneficial ownership information only from the plaintiffs in the case. These are members as of March 1, 2024, of the National Small Business Association (NSBA) and Isaac Winkles, a small business owner and member of NSBA. FinCEN said those individuals and entities do not need to report BOI at the present time. Thus, plaintiff Winkles and other members of NSBA do not need to report BOI pending further developments.
Since the Court’s ruling only applies to NSBA members and Winkle, others must still abide by the Corporate Transparency Act. Thus, for the time being others are still subject to the BOI reporting requirements. The reporting deadlines are:
Businesses established before 2024 must complete the FinCEN reporting requirement before January 1, 2025.
Business established during 2024 must complete the FinCEN reporting requirement within 90 days of establishing the business.
As the dust settles on this pivotal ruling, its broader implications for federal regulatory power and the fight against money laundering remain to be seen. The government is likely to appeal the decision, setting the stage for a legal battle that could ultimately reach the Supreme Court. Further guidance will have to wait for the results of an anticipated appeal by the Treasury Department.
Want our best tax and accounting tips and insights delivered to your inbox?
Sign up for our newsletter.
Benefits of having a business advisor
Your CFO, Reimagined as a Financial Doctor
Diagnosing root causes, prescribing solutions, and guiding your property business toward long-term wealth.
Our CFO | Advisor
Raquel is a passionate business owner. Now, she is returning to her grassroots with a twist - guiding clients with her expertise as a CPA, she can advise your company as your trusted CFO and Advisor.
-
Raquel Deodanes, MS, CPA
Co-Founder✅ CPA with Real-World Experience – I help property managers stay profitable, tax-efficient, and cash flow positive.
✅ Tax Strategist – Former advisor at California’s revenue agency.
✅ Trusted by 4,000+ Businesses – Experience across CA, FL, TX, NV, and beyond.
✅ Real Estate Investor – I understand the financial realities of property management.
✅ Entrepreneur – I’ve built businesses and know the challenges you face.
Frequently Asked Questions
-
We diagnose financial inefficiencies, treat problems like poor cash flow or rising costs, and guide you to long-term financial health. That includes cleaning up your books, forecasting cash flow, optimizing operations, and helping you grow your portfolio with confidence — just like a doctor builds a custom care plan for a patient.
-
Bookkeepers record transactions. CPAs file your taxes. We connect the dots — helping you understand your numbers, strategically improve them, and make smarter decisions throughout the year. We work alongside your existing team to drive performance, not just compliance.
-
If you're unsure where your cash is going, struggling with rising costs, planning to scale, or just tired of reacting instead of planning — now is the right time. We help you get ahead of problems, not just clean up after them.
-
Clients typically see improved cash flow, cleaner books, higher NOI, better financial reporting, and a lot less stress at tax time. More importantly, you gain clarity, confidence, and control over your business — and a partner who helps you grow it.
Pricing
Painless, transparent pricing.
Let us take away your stress and give you back your time. Choose your perfect package today.
Base
-
Dedicated finance expert
-
Bookkeeping with accrual basis
-
Includes P&L, balance sheet, and cash flow statements
Core
-
Includes everything in Base, PLUS
-
Industry KPIs and financial ratios
-
Monthly virtual 1-hr meetings
-
Monthly rolling budget forecasts
Growth
-
Includes everything in Base, CORE
-
Budget vs. actuals variance analysis and review
-
Payroll and HR Platform