The Corporate Transparency Act Found Unconstitutional for Specific Plaintiffs
On March 1, 2024, a federal judge in the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (CTA) “exceeds the Constitution’s limits on the legislative branch.”
03.07.24
In National Small Business United v. Yellen[1], the court permanently enjoined the Department of the Treasury and FinCEN from enforcing the CTA; although, this ruling only applies narrowly to the plaintiffs in the case. As a result, FinCEN announced that it will comply with the court’s order “for so long as it remains in effect.”
While the government is not currently enforcing the CTA against the plaintiffs (i.e., the National Small Business Association and its members), it is anticipated that the government will file an appeal to the U.S. Court of Appeals for the Eleventh Circuit. As of now, it is unknown how this case will proceed on appeal or how other federal courts will rule on the matter. Further, there will likely be other challenges to the CTA this year, so the future of the CTA remains uncertain.
Due to the limits of the ruling, we recommend that reporting companies continue to comply with the CTA and its filing requirements until a different course of action is justified based upon the outcome and finality of all appeals of this ruling and/or any other litigation challenging the CTA. Since noncompliance could potentially result in civil and criminal penalties, any entities formed this year should continue to abide by FinCEN’s 90-day filing deadline. Entities formed prior to 2024 should continue to gather beneficial ownership information but may want to wait to file closer to the end of the year to see the results of further court rulings. While there is no certainty as to when there will be a resolution on the constitutionality of the CTA, we will closely monitor and provide updates as they become available.
For additional information or assistance regarding the CTA, its filing process, or legal analysis, contact Jon Katona, Patrick Murphy or Samantha Blank.
For additional information on the CTA, please see our previous publications here and here. Or you can visit FinCEN’s BOI webpage. You can also join us for a CLE, “The Corporate Transparency Act: What We Know Now,” on April 3, 2024.
[1] Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448-LCB (N.D. Ala. 2022).