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FinCEN has been urged to halt all enforcement of the Corporate Transparency Act (CTA) and its mandatory beneficial ownership information (BOI) reporting following a recent legal victory by plaintiffs challenging the law. The federal district court in Alabama ruled in favor of the plaintiffs, declaring the CTA unconstitutional in the case National Small Business United v. Yellen. Consequently, FinCEN announced that it would cease BOI enforcement against the plaintiffs, which include the National Small Business Association (NSBA) and an Alabama entrepreneur.

According to the court’s ruling, the CTA exceeds constitutional limits on the legislative branch and lacks a clear connection to Congress’ enumerated powers. Despite FinCEN’s decision to suspend enforcement for the plaintiffs, NSBA leaders expressed disappointment, calling for uniform treatment across all businesses.

The CTA, passed by Congress in 2021 as an anti-money laundering measure, mandates reporting companies—such as corporations and LLCs—to disclose information about their beneficial owners and applicants. This requirement extends to new entities formed after January 1, 2024. Failure to comply with these regulations can result in significant penalties, including fines, imprisonment, and tax implications.

FinCEN estimates that BOI reporting obligations apply to approximately 32.6 million entities, with an additional 5 million entities expected annually until 2034. Legal experts anticipate that the government will appeal the court’s decision, with the case likely heading to the Supreme Court.

In response, the American Institute of Certified Public Accountants (AICPA) advised small businesses to continue filing BOI reports while advocating for the suspension of the reporting rule. The call for a pause in enforcement underscores the ongoing legal and regulatory uncertainties surrounding the CTA and its implications for businesses nationwide.

Source ( Journal of Accountancy News).