By Emily M. Frohman, Esq. and Brandon J. Leal, Esq.
On Friday, March 1, 2024, the U.S. District Court for the Northern District of Alabama declared the Corporate Transparency Act (the "CTA") unconstitutional in the case of National Small Business United d/b/a the National Small Business Association v. Janet Yellen (Case No. 5:22-cv-1448). The opinion by U.S. District Court Judge Liles C. Burke held that the Corporate Transparency Act "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."
As a result, Judge Burke found the CTA to be unconstitutional because it exceeds the Constitution's limits on Congress' power, without even reaching a decision on whether it violates the First, Fourth, and Fifth Amendments.
It is unclear if this ruling is limited to its plaintiffs or more broadly impacts all businesses that the CTA required to report their beneficial ownership information to the Treasury Department's Financial Crimes Enforcement Network ("FinCEN"). Moreover, it is likely that this ruling will be appealed and that the court of appeals, and possibly the Supreme Court, will also weigh in on the issue of the CTA’s constitutionality in the coming months and years.
Thus, for now we encourage all of our small-business clients whose businesses were formed prior to January 1, 2024 to adopt a “wait and see” approach and to refrain from submitting their report until later this year as this case makes its way through the courts. For those that are contemplating forming a new entity this year, contact your WHP attorney to discuss the timing of your reporting. We will continue to share updates as decisions are made that will affect small businesses.
If you have any questions regarding this ruling and its impact on your business, do not hesitate to contact your WHP counsel.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.