On March 1, 2024, The Corporate Transparency Act (CTA), a topic that our firm has posted a blog on already and can be found here: “The Corporate Transparency Act Became Effective January 1, 2024: What Business Owners Need to Know Including Updates From the November 2023 Final Rule.” , was declared unconstitutional by the U.S. District Court for the Northern District of Alabama in the case of National Small Bus United, d/b/a The Nat’l Small Bus Ass’n v Yellen, No 5:22-cv-1448-LCB, (ND Ala Mar 1, 2024).
In his opinion, U.S. District Judge Liles C. Burke granted summary judgment to the National Small Business Association (NSBA), holding that the CTA “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” Slip op at *3.
The government cited three sources of congressional authority under the Constitution for enactment of the CTA: (1) the foreign affairs and national security powers of Congress, (2) its authority under the Commerce Clause, and (3) the CTA is a necessary and proper exercise of congressional taxing power. The court found none of these justifications authorized the CTA.
On the first allegation from the government, the court disagreed, noting that matters of incorporation are internal affairs governed by state law, as recognized by previous Supreme Court precedent. The court also disagreed with the argument that the CTA was justified under the Commerce Clause, finding that Congress does not have the authority to “regulate an entire class just because some members of the class use the channels and instrumentalities of commerce.” Slip op at *32. And, finally, the court determined that the regulations and civil penalties under the CTA do not constitute an exercise of Congress’ taxing power, nor could it be necessary an proper since, in their determination, no power exists that grants Congress the powers it wishes to exercise under the CTA.
What’s Next for the CTA?
With this decision the reporting obligations of newly formed and previously existing entities are unclear. The jurisdiction of the deciding court is limited to its district in Alabama. The court did not accompany its opinion with any sort of nationwide or extraterritorial injunction prohibiting enforcement elsewhere. The decision will likely be appealed. In light of the narrow scope of the judgment in the case, FinCEN’s announcement regarding the case, and the government’s appeal, companies and persons that were not a plaintiff to the case or members of the NSBA as of March 1, 2024, should, at this time, assume that FinCEN continues to view them as subject to the CTA. Although the individual circumstances of companies may vary, in general, companies should be prepared to meet any timelines for filings required by the CTA.
We at Cooper & Riesterer will stay tuned in for what happens on the appeal, and update our website accordingly. If in the meantime you have any questions or concerns, please feel free to reach out to Attorneys Zachary Stewart (zach@crlaw.biz); or Abby Cooper (abby@crlaw.biz).
