On Friday, March 1, 2024, an Alabama federal district court issued its decision in National Small Business United v. Yellen, holding that the Corporate Transparency Act (the “CTA”) is unconstitutional. The plaintiffs argued that, in enacting the CTA, Congress exceeded the enumerated powers granted to it under the U.S. Constitution. The federal government argued that Congress was authorized to enact the CTA as an exercise of its powers to conduct foreign affairs, regulate commerce, and collect taxes. The court sided with the plaintiffs and rejected all of these arguments in ruling that the CTA is unconstitutional.
The Alabama federal district court has entered a judgment declaring that the CTA is unconstitutional and, notably, that it may not be enforced against the plaintiffs in this action. No nationwide injunction against enforcement of the CTA has been issued to date. The judgment suggests that members of National Small Business United, also known as the National Small Business Association (“NSBA”), may be covered by the trial court’s ruling, but for now, it is unclear how and whether the CTA will continue to be enforced against others who were not party to the case.
The U.S. Treasury Department will likely appeal this decision to the U.S. Court of Appeals for the Eleventh Circuit and may seek a stay of the limited relief granted by the trial court. It is also possible that the decision will ultimately be appealed to the U.S. Supreme Court after the Court of Appeals rules.
Companies that existed before January 1, 2024, and are not exempt from the CTA have until January 1, 2025, to file the initial beneficial ownership report (“BOI report”) required by the CTA. In addition, non-exempt companies formed since January 1, 2024, have only 90 days to file the initial BOI report, meaning that these reports will start coming due for new companies as early as April 1, 2024. As matters stand, particularly if your company is not a member of the NSBA, we believe the best course of conduct is to continue forward on your CTA compliance efforts and to satisfy all applicable deadlines. If your company is a member of the NSBA, there are additional considerations that you should discuss with your attorney.
The SKO CTA Practice Group is examining this new decision, will be carefully tracking further developments, and is preparing further recommendations on how to proceed in this environment of uncertainty. Meanwhile, SKO’s Corporate Transparency Act Series will continue to provide more information on these and other issues involving compliance with the CTA.
