Judge Burke’s decision found the law to be “unconstitutional because it exceeds the Constitution’s limits on Congress’ power.”

For the last six months, there has been an ever-increasing crescendo of alerts, briefings and warnings about the Corporate Transparency Act (CTA) and the reporting regulations issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to implement it. Those regulations went into effect on January 1, 2024, and Duane Morris has issued several prior Alerts on the subject.

On March 1, 2024, Judge Liles Burke of the United States District Court for the Northern District of Alabama issued an order declaring the CTA unconstitutional and enjoining the Treasury Department and FinCEN from enforcing the CTA against the plaintiffs in the case National Small Business Association, et al. v. Janet Yellen, et al. Judge Burke’s decision found the law to be “unconstitutional because it exceeds the Constitution’s limits on Congress’ power.” He also explicitly stated that the “Court makes no ruling as to the constitutionality of the Act on any other grounds” and enjoined the enforcement of CTA “against the Plaintiffs.”

On March 4, 2024, FinCEN issued a press release announcing the court’s decision and stating:

FinCEN will comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.

Importantly, other than as to the plaintiffs in the action, FinCEN’s position appears to be that the requirements of the CTA continue to apply. We anticipate that the government will file an appeal of the Alabama decision to the Eleventh Circuit Court of Appeals. The appeals process can be lengthy, and it is possible additional suits challenging the CTA may be filed, creating further uncertainty for businesses regarding the CTA. 

We will be closely monitoring litigation regarding the constitutionality of the CTA and will continue to provide updates. For the present, unless you are a plaintiff in the Alabama case, we continue to recommend timely compliance with the CTA. That said, it may be beneficial to wait to report beneficial ownership information to FinCEN until the end of your applicable reporting period in the event interim guidance is issued.  

About Duane Morris

Duane Morris is actively monitoring developments regarding the CTA and issuing Alerts on the topic. Duane Morris will provide advice to clients related to CTA compliance only when explicitly engaged to do so in writing.

For More Information

If you have any questions about this Alert, please contact Thomas R. Schmuhl, Jocelyn Margolin Borowsky, Joel N. Ephross, Bruce H. Jurist, Hope P. Krebs, Lee J. Potter Jr., any of the attorneys in our Corporate Transparency Act Group, the attorney in the firm with whom you are regularly in contact, or Michael A. Gillen or any of the professionals in the Tax Accounting Group.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.