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Federal Court Declares Corporate Transparency Act Unconstitutional


Gavel on desk in office with booksThe Corporate Transparency Act (CTA), passed by Congress with bipartisan support in 2020, took effect on January 1, 2024. As explained in our earlier article, the CTA requires that most businesses operating within the United States provide the United States Department of Treasury’s Federal Crimes Enforcement Network (FinCEN) with personal information regarding the company’s beneficial owners. The intent of the CTA was to provide essential information to various governmental agencies and financial institutions to help prevent terrorism, drug trafficking, fraud, corruption and money laundering in the U.S.

Despite being in effect for just over two months, on March 1st of this year, the U.S. District Court for the Northern District of Alabama ruled that the CTA was unconstitutional. In National Small Business United d/b/a National Small Business Association v. Yellen, the Court issued a declaratory judgment stating the CTA exceeds Congress’s authority to regulate interstate commerce, and that the CTA is not necessary for the proper exercise of Congress’s power to regulate foreign affairs or its taxing power. The Court further enjoined the federal government from enforcing the CTA’s reporting requirements against the plaintiffs in the case. The Court’s ruling is limited in scope, and only prevents FinCEN from enforcing the CTA’s reporting requirements on the plaintiffs. 

In a statement issued on March 4, 2024, FinCEN addressed the Court’s ruling stating that it would comply with the Court’s order and that no enforcement efforts will be taken against the plaintiffs in the case, including the members of the National Small Business Association, making it clear that all other entities who were not plaintiffs in the case are still required to report their beneficial ownership information to FinCEN.

The government is expected to appeal the Court’s decision and seek a stay of the decision in the interim. However, the appeals process could take several months or even years. It is unlikely that the appeal will make it through the appeals court, let alone the U.S. Supreme Court, by the end of 2024, which is the deadline for entities formed prior to January 1, 2024, to report their beneficial ownership information under the CTA.  

If you or your business entity have any questions regarding your ongoing compliance under the CTA, please contact your Eastman & Smith attorney to discuss your compliance with the CTA.


   Disclaimer: This alert has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.