FEDA Joins Trade Groups in Asking Treasury to Purge Beneficial Ownership Data

A federal appeals court has reversed a lower court ruling that found the Corporate Transparency Act (CTA) unconstitutional, possibly reviving the 2021 law that requires businesses with fewer than 20 employees to disclose beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

In the Dec. 16 ruling, a three-judge panel from the 11th U.S. Circuit Court of Appeals determined that the CTA fell within Congress’ power under the U.S. Constitution’s Commerce Clause because it regulates economic activity. Business advocacy groups such as the S-Corp Association have rejected this interpretation of the CTA, noting that the law’s reporting requirements are triggered when a corporation is formed, not when it engages in economic activity.

The law’s stated purpose is to collect information on corporate ownership to combat illicit financial activity such as money laundering, tax fraud, and the financing of terrorism. In practice, the law’s new requirements created a new burden on 32 million entities to report their owners’ private information, despite no evidence that any of those businesses were actually engaged in illegal activity. As a result, the law has been widely opposed by business and trade groups, including FEDA.

The reporting requirements went into effect at the beginning of 2024 but were quickly challenged. Later that year, the U.S. District Court for the Northern District of Alabama ruled that Congress exceeded its authority because the CTA regulated noncommercial acts of incorporation, a local act that did not qualify as interstate commerce.

The appeals court ruling reverses that decision; however, it is unclear when or if businesses will need to begin reporting ownership information. Last March, the U.S. Treasury Department announced that it would not enforce any penalties or fines associated with the beneficial ownership information rule against U.S. citizens or domestic companies. Only foreign companies are currently required to report ownership information under the U.S. Treasury policy.

Still, the appeals court decision or a further appeal to the U.S. Supreme Court could alter the U.S. Treasury’s policy. In anticipation of that, FEDA and other trade associations have sent a letter to U.S. Treasury Secretary Scott Bessent asking the department to purge from its database all beneficial ownership information submitted by domestic entities that are no longer required to file, ensuring the information is not misused or leaked in the future. About 16 million individuals and businesses had already submitted beneficial ownership information to FinCEN before the Treasury changed its policy last March.

“Given this legal uncertainty and the fact that domestic businesses are no longer subject to the CTA's reporting requirements, the continued retention of their data serves no legitimate government purpose,” the letter states.

The full letter is available here.