The Corporate Transparency Act: The New Law’s Constitutionality and How it Will Impact Millions of U.S. Businesses

Frankie Weiss*

The era of corporate secrecy could be ending. In 2021, the Corporate Transparency Act (“CTA”) was passed into law as part of the National Defense Authorization Act,¹ representing one of the most significant changes to corporate regulation in decades. Designed to combat tax fraud, money laundering, and terrorism financing through shell companies or other opaque ownership structures, the CTA introduces a sweeping mandate: the disclosure of beneficial ownership information (“BOI”) for most small and medium-sized U.S. businesses.² While the CTA aims to enhance transparency and accountability, it also raises constitutional concerns and presents challenges for business owners as they adapt to a new era of regulatory oversight.

The primary objective of the CTA is to create a centralized database of beneficial ownership information that will be maintained by the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of Treasury.³ Under the law, many U.S. corporations, limited liability companies, and other similar entities will be required to report information about their beneficial owners—individuals who own or control at least 25% of the company or exercise substantial control over its operations.⁴ The CTA requires beneficial owners of a qualified entity to report identifying information—name, date of birth, residential address, identifying documents—to FinCEN by January 1, 2025.⁵ Failure to file your BOI report with FinCEN by the end of the year may result in heavy fines up to $10,000 and even imprisonment.⁶ Although the CTA’s goals of transparency and crime prevention seek to benefit America’s corporate sector, the law has sparked constitutional debates, particularly around the issues of privacy and due process.

This massive new filing report seemed to be off to a good start when FinCEN announced in mid-February, 2024 that over 500,000 of the 32 million businesses subjected to the CTA had filed BOI reports.⁷ This sigh of relief was short lived for FinCEN as the agency suffered an unexpected gut punch. On March 1, 2024, the United States District Court for the Northern District of Alabama determined the CTA was unconstitutional.⁸

The National Small Business Association (“NSBA”), the plaintiff in the case, alleged that the CTA’s reporting requirements violated U.S. citizens’ constitutional rights because it forces individuals to report sensitive personal information.⁹ The Alabama district court agreed with the NSBA, stating Congress had exceeded its enumerated powers.¹⁰ In response to the court’s decision, FinCEN issued a statement and enjoined the enforcement of the CTA with respect to the NSBA,¹¹ which encompasses some 65,000 members.¹² While this announcement temporarily relieved the plaintiffs from filing BOI reports, the rest of the 32 million affected businesses were still required to file BOI reports.¹³

As expected, the Justice Department, on behalf of the Department of Treasury, filed a notice of appeal on March 11, 2024 with the United States Court of Appeals for the Eleventh Circuit.¹⁴ The circuit court granted the appeal and heard oral arguments on September 26, 2024.¹⁵ During its oral argument, the Treasury argued that the CTA falls within Congress’s broad economic regulatory authority under the Commerce Clause and the Necessary and Proper Clause of Article I of the Constitution.¹⁶ Specifically, the Treasury argued that Congress has historical legislation on combating financial crimes, the states cannot effectively address these crimes, and such entities that fall under the CTA’s scope have a substantial effect in interstate and international commerce.¹⁷ Thus, the CTA falls within Congress’s authority under the Commerce and Necessary and Proper Clauses because it is rationally related to a legitimate public purpose—preventing financial crimes within America’s corporate sector.¹⁸ Conversely, the NSBA contended that the CTA oversteps federal authority by targeting the mere act of forming an entity, which is a non-commercial, state-governed activity, and has no effect on interstate commerce.¹⁹ Further, the NSBA argued that Congress cannot regulate individuals based on potential future economic activity, as this exceeds the scope of the Commerce Clause.²⁰ Thus, the CTA creates an unauthorized search which is forbidden under the Fourth Amendment.²¹

While NSBA v. Yellen has been leading the charge for challengers of the CTA in 2024, a more recent case has taken over the headlines. On December 3, 2024, the Federal District Court for the Eastern District of Texas also ruled the CTA unconstitutional and imposed a nationwide preliminary injunction, effectively relieving all 32 million businesses across the country from filing BOI reports.²² This decision was expediently appealed to the Fifth Circuit who reversed the nationwide injunction on December 23 only to vacate that order and stay the injunction three days later.²³ This back and forth between the courts has created a whiplash affect leaving business owners confused on whether they need to file their BOI reports or not. But for now, FinCEN has updated its website declaring BOI reporting unenforceable for the time being.²⁴

The CTA represents a significant shift in federal regulation, aiming to combat financial crimes while raising concerns about overreach into areas traditionally governed by states. The courts’ volatility over the CTA’s constitutionality has created uncertainty for businesses facing compliance deadlines amid unresolved legal questions. Regardless of the outcome, the law has sparked a national debate about the limits of government oversight and the protection of privacy. One thing is for certain: litigation regarding the future of the CTA is far from over.

* Frankie Weiss, J.D. Candidate, University of St. Thomas School of Law Class of 2026 (Associate Editor).

1. The Corporate Transparency Act (CTA), IACA, https://www.iaca.org/about-iaca/corporate-transparency-act/#:~:text=The%20Corporate%20Transparency%20Act%20(%E2%80%9CCTA,%2C%20corruption%2C%20and%20tax%20fraud [https://perma.cc/76GU-WPTL] (last visited Nov. 16, 2024). ↩︎
2. Miranda Fraraccio, What Every Small Business Needs to Know About the Corporate Transparency Act, U.S. Chamber of Comm. (Aug. 27, 2024), https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act [https://perma.cc/KZF6-MWAW]. ↩︎
3. Jonathan M. Epstein et al., Impact of the Corporate Transparency Act on Business Aviation and Fast Approaching Deadlines, Holland & Knight (Oct. 2, 2024), https://www.hklaw.com/en/insights/publications/2024/10/impact-of-the-corporate-transparency-act-on-business-aviation [https://perma.cc/VUK9-3MUD]. ↩︎
4. Id. ↩︎
5. Id. ↩︎
6. Fraraccio, supra note 2. ↩︎
7. BOI Reporting Unconstitutional for 65,000, but Likely Not You, Bradford Tax Inst. (Apr. 2024), https://bradfordtaxinstitute.com/Content/BOI-Reporting-Unconstitutional-for-65000-but-Likely-Not-You.aspx [https://perma.cc/V3SG-4A8E]. ↩︎
8. Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260, 1289 (N.D. Ala. 2024). ↩︎
9. Id. at 1270. ↩︎
10. Id. at 1289. ↩︎
11. Jeffrey M. Telep & Shaswat K. Das, Federal District Court in Alabama Declares CTA Unconstitutional; DOJ Appeals to 11th Circuit; FinCEN Requires Continued Compliance, King & Spaulding (Mar. 12, 2024), https://www.kslaw.com/news-and-insights/federal-district-court-in-alabama-declares-cta-unconstitutional-doj-appeals-to-11th-circuit-fincen-requires-continued-compliance [https://perma.cc/F2PP-VAHK]. ↩︎
12. Bradford Tax Inst., supra note 7. ↩︎
13. Telep & Das, supra note 11. ↩︎
14. Telep & Das, supra note 11. ↩︎
15. Epstein et al., supra note 3. ↩︎
16. Yuefan Wang & Matti Mortimore, Eleventh Circuit to Review Constitutionality of Corporate Transparency Act, Husch Blackwell (May 21, 2024), https://www.huschblackwell.com/newsandinsights/eleventh-circuit-to-review-constitutionality-of-corporate-transparency-act [https://perma.cc/CT9H-P5JF]. ↩︎
17. Id. ↩︎
18. Id. ↩︎
19. Id. ↩︎
20. Id. ↩︎
21. Id. ↩︎
22. Jessica Manivasagar et al., Updated: Texas Court Issues Nationwide Injunction on Corporate Transparency Act, Fredrikson & Byron P.A. (Dec. 24, 2024), https://www.fredlaw.com/alert-texas-court-issues-nationwide-injunction-on-corporate-transparency-act [perma.cc/XB4Z-PL92].  ↩︎
23. Id. ↩︎
24. Beneficial Ownership Information Reporting, Fin. Crimes Enf’t Network, https://fincen.gov/ [https://perma.cc/2GS7-8DK9] (last visited Dec. 29, 2024). ↩︎