Trust This. Special Edition. March 4, 2024.

BOI Reporting Requirement found unconstitutional

On March 1, U.S. District Court Judge Liles C. Burke, sitting in the Northern District of Alabama (Huntsville) held that the Corporate Transparency Act (CTA) is unconstitutional.

Why it matters: As we’ve written here and here, the CTA requires over 34 million existing U.S. businesses to file Business Ownership Information reports with FinCEN or be subject to criminal penalties.

State of play: The National Small Business Association and one of its members sued Treasury Secretary Janet Yellen, alleging that the law passed in 2021 was unconstitutionally burdensome, an invasion of privacy, and a violation of the right to free speech.

  • In November 2023, the court heard oral arguments on cross-motions for summary judgment.

  • Last Friday, the judge ruled in the case where he held that Congress has no Constitutional authority to compel state-regulated corporations and LLCs to register with a federal crime-enforcement department.

  • The court reasoned that the BOI registrations are akin to trying to inject federal law into the creation and maintenance of entities that the founding fathers argued and decided should only be regulated by the states.

What they’re saying:

This is an aberrant decision issued by a lone district judge in Alabama, based on an extraordinarily narrow view of Congress’s constitutional powers that is unsupported by precedent,” said Senator Sheldon Whitehouse, the Rhode Island Democrat who is one of the law’s supporters.

and

This is a pro-crime, pro-drug cartel, pro-fentanyl ruling which undermines the rule of law and allows criminals to use anonymous shell companies to hide their dirty money from law enforcement.” Ian Gary, executive director of the FACT Coalition.

and

“The Department of Justice is almost certain to appeal the ruling, so the court challenge is far from over. But whichever way it goes, today’s ruling will help focus the attention of the public, the media, and lawmakers as to the threat the CTA and other laws like it pose to the privacy of law-abiding Americans, and it will help us in our efforts to ultimately fight these laws in Congress.” News Release from S-Corp

What’s next:

  • The U.S. Dept. of Justice will appeal the ruling to the Eleventh Circuit Court of Appeals;

  • FinCEN may make some public comments about the ruling and its enforcement in light of it in the near future;

  • There could be copycat suits filed throughout the country.

Yes, but: There is a consensus among large law firms and legal scholars that the ruling applies only to the NSBA’s 65,000 members at most, and provides no relief for anyone else.

The bottom line: To be safe, non-exempt reporting companies not members of NSBA should continue complying with the law until this case and the others that will inevitably follow make their way through the courts.

  • For companies created before January 1, 2024, the deadline for compliance is December 31, 2024, so there’s time to get more clarity before penalties accrue.

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