The U.S. Justice Department (DOJ) appealed a federal court decision that held the Corporate Transparency Act (CTA), P.L. 116-283, which requires the reporting of beneficial ownership information (BOI) by businesses, is unconstitutional.

On Monday, the DOJ filed its appeal of the March 1 decision by a federal district court in Alabama to grant the plaintiffs’ motion for summary judgment regarding the constitutionality of the law in the case of National Small Business United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. 3/1/24). 

The holding affects only the plaintiffs, which include the 65,000 businesses that were National Small Business Administration (NSBA) members as of March 1.

Todd McCracken, the NSBA president and CEO, said the NSBA welcomes the appeal because he expects the courts to agree that the act is unconstitutional.

“If Congress does not repeal the CTA, eventually the Supreme Court will need to address this issue as well and strike down the statute for the entire United States,” he said Tuesday in a statement.

Under the act, 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, 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.

Treasury’s Financial Crimes Enforcement Network (FinCEN), which administers the CTA, estimates that BOI reporting regulations apply to 32.6 million entities with 5 million to be added each year through 2034.

AICPA response

In a statement after the federal court opinion, 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.