On March 1, 2024, a brief two months following its implementation, the Corporate Transparency Act (CTA) was called into question by a federal court in the Northern District of Alabama. Although the impact of the court’s ruling is limited at this time and is likely to be appealed to a higher court, the ruling could pave the way for future challenges to the CTA. The US District Court for the Northern District of Alabama ruled that the CTA is unconstitutional. The case was brought before the court by the National Small Business Association (NSBA) and Isaac Winkles, an NSBA member, on the grounds that the CTA’s disclosure requirements exceed Congress’s authority under Article I of the US Constitution and violate the First, Fourth, Fifth, Ninth, and Tenth Amendments. The court held that the CTA exceeded the limits of congressional authority but declined to rule on the plaintiffs’ other allegations regarding violation of the Amendments enumerated above. Specifically, the court rejected the federal government’s reasoning that the CTA is authorized under three powers: (1) foreign affairs powers, (2) the Commerce Clause, and (3) taxing powers.

Despite the U.S. District Court’s critical decision, its ruling is limited in scope; only the plaintiffs identified in the case are exempt from filing beneficial ownership information while all other individuals are required to file a BOI report. Additionally, the court’s ruling is highly likely to be appealed, and could even be referred for decision to the US Supreme Court. As far as disclosure requirements go, individuals are still required to comply with the CTA. For more information about disclosure requirements, refer to “FinCEN Requirement Change 2024” on the blog page. This particular ruling could pave the way for further challenges to the CTA, which might ultimately redefine disclosure requirements for business owners. In light of this, it might be wise for business owners with businesses that formed prior to January 1, 2024, to wait until later in the year to file beneficial ownership information just to see if any change comes. Moreover, the aforementioned business owners who expect significant changes to occur in their entity/entities should probably wait to file a BOI report until later in the year, since any significant changes require business owners to refile their BOI report within 30 days of such change.

In conclusion, the CTA is still in full force and effect, but a ruling in the US District Court for the Northern District of Alabama might influence the future enforceability of this Act. Either way, business owners should be vigilant when complying with disclosure requirements. Attorneys at Sumsion Business Law can assist you with any questions you might have about this complex and evolving area of the law.

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