FAYETTEVILLE — Following a federal district court’s ruling that the Corporate Transparency Act is unconstitutional, questions remain over whether millions of business entities will be required to file with the federal government.
On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act is unconstitutional. The Corporate Transparency Act, or CTA, went into effect on Jan. 1. Designed as a defense mechanism against fraud and money laundering operations, the CTA requires that many small business entities file in 2024 with the Financial Crimes Enforcement — “FinCEN” — network website, disclosing information about beneficial owners.
On March 1, the U.S. District Court for the Northern District of Alabama issued its ruling in National Small Business United v. Yellen, determining that the CTA exceeds Congress’ power. In his memorandum opinion, U.S. District Court Judge Liles C. Burke noted that states grant businesses the ability to operate and “with that in mind, this case presents a deceptively simple question: Does the Constitution give Congress the power to regulate those millions of entities and their stakeholders the moment they obtain a formal corporate status from a State?”
Burke concluded that “The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.” The plaintiffs in the case were granted summary judgment as a matter of law.
Elizabeth Rumley, senior staff attorney for the National Agricultural Law Center, said the court’s decision prohibits enforcement of the CTA reporting requirements against the plaintiffs in the case. According to a notice from FinCEN, that includes the named plaintiff, the National Small Business Association, or NSBA, and all members of the NSBA as of March 1, 2024.
While the ruling suspends enforcement of the CTA in regard to some specific parties, it is still to be determined how this development impacts filing requirements more broadly.
What’s next?
“It is probable that the Department of Treasury will appeal this ruling to the 11th Circuit Court of Appeals,” Rumley said. “We don’t know yet what the final consequences will be, but it is important for business owners to pay close attention to this developing issue.”
On March 20, the NALC will host a webinar covering details on the CTA. Kristine Tidgren, director of the Center for Agricultural Law and Taxation at Iowa State University, is presenting the webinar, which has been re-titled to “Corporate Transparency Act: New Reporting Requirements & Litigation Updates” to reflect the district court’s ruling. The webinar will be held at 11 a.m. Central/noon Eastern and registration is free-of-charge online.
In her presentation, Tidgren will discuss the latest CTA developments, including the ruling from the Alabama district court. There will also be an opportunity for question and answer from attendees.
“The CTA is a major topic that could impact millions of business and farm owners,” Rumley said. “Our goal is to inform the public as much as possible about the CTA, what it does, who is impacted and where things are at with this evolving topic. Kristine’s presentation on March 20 will provide up-to-date information.”
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