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| 1 minute read

Federal Court declares Corporate Transparency Act unconstitutional: applicable to some, not all.

There has been much talk about the recently effective Corporate Transparency Act, and the tens of millions of entities subject to its reporting requirements. A wrinkle was thrown into the narrative of the CTA on March 1, 2024, when United States District Court Judge Liles C. Burke of the Northern District of Alabama handed down a ruling which declared the CTA unconstitutional, stating that the CTA, "exceeds the Constitution's limits on the legislative branch and lacks a sufficient nexus to any numerated power to be a necessary or proper means of achieving Congress' policy goals." You can read the opinion here.

The Government argued that the CTA is constitutional under its foreign affairs powers, Commerce Clause authority, and taxing power. The court detailed why the scope of the CTA could not be justified by any one of those three powers, due to, among other things, attenuation, the text of the Act itself, and the juxtaposition of a Federal requirement regulating corporations and other entities which has invariably been a State power since the initial establishment of Constitutional authority. In doing so, it conceded that “the wisdom of a policy is no guarantee of its constitutionality,” and mentioned multiple times how the goal of the CTA something to strive for, and perhaps it could have been written in a manner that made a much stronger argument for constitutionality. Yet, as written, the CTA is unconstitutional because it cannot be justified as an exercise of Congress' enumerated powers, according to this court.

To be clear, this ruling only effects the named parties in the suit, most notably the National Small Business Association and all of its members. All other entities who are not members of the NSBA remain subject to the reporting requirements of the CTA, for now. Appeals are expected and the future of this law is uncertain.

If you have any questions regarding the reporting requirements for your entity, please do not hesitate to reach out.