Corporate Transparency Act – Enforceable?

A Federal District Court in Alabama just issued a decision finding the Corporate Transparency Act (CTA) unconstitutional in the case of National Small Business United v. Yellen. The court ruled that in enacting the CTA, Congress exceeded its Constitutional powers, including its authority to regulate interstate commerce. Specifically, the court agreed with plaintiffs that while Congress can regulate commerce among states, this does not extend to substantively regulating the actual business entities engaged in commerce.

The District Court order granted relief only to the plaintiffs, the National Small Business Association and one of its members.

The Department of Justice is expected to appeal the ruling. And there is the possibility appeals could reach the Supreme Court level over these Constitutional questions.

In the interim, most entities still need to comply with the CTA until higher courts deliver more definitive decisions on its overall merits. Facing this uncertainty, attorneys assisting clients with CTA compliance will need to determine whether to pause efforts pending appeals or proceed assuming the law will be upheld.

Entities formed recently in 2024 still face looming CTA reporting deadlines. There are also some companies created in 2023 under agreements taking effect in 2024 that have upcoming due dates. As attorneys analyze this fluid situation and evolving legal arguments on appeal, providing clients clear guidance remains our key responsibility. Thorough assessment as next legal steps unfold will be crucial.