On Friday, March 1, 2024, the newly enacted Corporate Transparency Act (CTA) was ruled unconstitutional by a U.S. District Court judge in Alabama. The CTA, which went into effect January 1, 2024, requires unprecedented federal reporting of the beneficial owners of most small businesses (see our December 2023 article covering all of this more broadly).
The Alabama Judge held that the CTA is unconstitutional because it “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.” While numerous grounds were asserted for why the CTA should be found unconstitutional, including those based on privacy, self-incrimination, and due process, the Court did not address those arguments. The Court found that Congress had exceeded its power when it enacted the CTA, and thus, it was unconstitutional.
It should be noted that this particular ruling is very limited in its scope and did not apply to businesses that may be subject to the CTA. In fact, it only prohibits enforcement of the CTA’s reporting requirements to the plaintiffs in that particular case. However, in all likelihood, this ruling will be appealed to the U.S. Court of Appeals for the Eleventh Circuit (and, thereafter, potentially to the U.S. Supreme Court). As further litigation regarding the CTA’s enforcement and rules work through the Court’s system, the future of the CTA and its enforcement is anything but certain.
Until the courts provide further clarification, all non-exempt businesses should continue to comply with the CTA’s filing requirements. Therefore, all reporting companies should file a Beneficial Ownership Information report (BOIR) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, as required within the filing deadlines. Unfortunately for those reporting companies that are under a strict deadline that requires the CTA filing within the ninety (90) days of filing a new entity in 2024, there may be no option but to proceed with filing the BOIR.
As always, if you have any questions on this latest ruling or any other matters related to the CTA, please feel free to contact the Oberman Law Firm.
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