U.S. District Court Finds the Corporate Transparency Act Unconstitutional: Did Anything Really Change?

March 6, 2024Client Alert

In National Small Business United d/b/a the National Small Business Association, et al. v. Yellen, the U.S. District Court for the Northern District of Alabama declared the Corporate Transparency Act (CTA) unconstitutional on narrow federalism grounds, prohibiting the CTA’s enforcement against the plaintiffs in the action. In its opinion, the court deliberately sidestepped the plaintiffs’ broader arguments under the First, Fourth and Fifth Amendments. Reacting quickly to the narrow ruling, the U.S. Department of the Treasury (FinCEN) immediately announced that “the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in the action,” including the National Small Business Association and members of the National Small Business Association (as of March 1, 2024).  Thus, in FinCEN’s view, the CTA remains fully in force for everyone other than a direct or indirect participant in the case.

In short, reports of the CTA’s death appear to be greatly exaggerated (at least for the moment).  However, the court’s decision may prompt policymakers to re-visit the CTA, now that its wide-ranging practical implications have become clearer since going into effect. Even so, any legislative or regulatory relief will likely take months or even years to develop. In any event, because the court’s decision rests solely on federalism principles (rather than on a more expansive analysis of the First, Fourth and Fifth Amendments), any state version of the CTA (such as New York’s) stands completely unaffected.

While the court’s decision may have clouded the CTA’s future, prudence requires continuing present compliance with the CTA. Therefore, every business entity formed or registered to do business in the United States must determine still whether it is a “Reporting Company” and, if so, whether it is prepared to meet its CTA filing obligations.

We are monitoring this highly-fluid situation and will provide updates on any judicial, regulatory, or legislative developments.