Corporate Transparency Act, source of BOI reporting mandate, held constitutional

Reversing a district court, the Eleventh Circuit held Tuesday that the Corporate Transparency Act (CTA), which mandated beneficial ownership information (BOI) reporting, is constitutional and remanded the case for further proceedings.

In National Small Business United, et al. v. U.S. Department of the Treasury, et al., No. 24-10736, the court found that Congress has the power to enact the CTA under the Commerce Clause of the U.S. Constitution.

“In short, the CTA is a constitutional exercise of Congress’s enumerated power to regulate interstate commerce,” the court stated. “Because it is directed at the ownership and maintenance of corporations, it is a regulation of economic activity. And Congress rationally concluded that this activity has a substantial aggregate impact on interstate commerce.”

The CTA also does not violate the Fourth Amendment, as the National Small Business Association (NSBA) had claimed, according to the court. “It is a uniform reporting requirement applied to all businesses that meet the CTA’s definition of ‘reporting company,’” the court said. “There is nothing arbitrary or discretionary about its application.”

The case involves about 65,000 small businesses that were NSBA members as of March 1, 2024.

Background

Under the CTA, P.L. 116-283, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies, which are defined as corporations, limited liability companies (LLCs), and similar entities, were to disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies also were required to disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, LLC, or other similar entity.

But in March 2024, Treasury issued an interim final rule that removed the BOI filing requirement for domestic companies. However, in a brief filed in the National Small Business United case, the Justice Department said the interim rule was an executive branch action that did not affect the CTA’s constitutionality.

Reaction

“Obviously, we are very disappointed by this ruling and its impact on small businesses,” NSBA President and CEO Todd McCracken said in a news release. “While small businesses still remain safe today against the unfair CTA burden, it is now imperative that Congress pass legislation that permanently repeals the CTA.”

Thomas Lee, a member of the NSBA legal team, said the NSBA is considering options for seeking review by the U.S. Supreme Court.

The Financial Accountability and Corporate Transparency (FACT) Coalition, a nonpartisan alliance of more than 100 state, national, and international organizations, praised the ruling.

“The court’s decision confirms what Congress understood and intended when it originally passed this legislation: that anonymous companies are drivers of fraud, drug trafficking, and the threats posed by terrorists and transnational criminal organizations,” said Erica Hanichak, deputy director of the FACT Coalition.

AICPA advocacy

The AICPA and state CPA societies wrote numerous letters to Congress and Treasury’s Financial Crimes Enforcement Network, urging a delay in the reporting deadline. The AICPA regularly updates its BOI reporting resource center.

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