On February 16, 2024, we published a blog about the reporting requirements of the Corporate Transparency ACT (CTA). This past Friday, a federal court in the Northern District of Alabama issued a judgment declaring the CTA unconstitutional, citing its infringement upon the limits of Congress’ authority as outlined in the Constitution.

As a result, the Financial Crimes Enforcement Network (FinCEN), the Department of Treasury Agency charged with enforcing the CTA, is prohibited from enforcing the CTA against the specific plaintiffs (and only those plaintiffs) involved in the case. However, the broader implications of this ruling for the business community remain uncertain. While this decision might influence similar cases against the Treasury beyond the Northern District of Alabama, it does not establish legal precedent, leaving room for differing interpretations in other judicial contexts.

What’s Next?

It is expected that the Treasury will promptly appeal this ruling to the Eleventh Circuit Court of Appeals.

In its deliberation, the court addressed arguments presented by both Treasury and the Plaintiffs. Initially, it dismissed the Treasury’s standing argument, acknowledging the Plaintiffs’ identifiable injury and the NSBU’s standing to pursue the case in federal court.

Subsequently, the court scrutinized the constitutional arguments raised by the Plaintiffs, concluding that the CTA failed to meet the standards set forth by the Necessary and Proper Clause (pertaining to foreign affairs and national security), the Commerce Clause, and Congress’s taxation authority under the Necessary and Proper Clause.

By referencing pertinent Supreme Court precedents, the court underscored that the CTA could not be validated as a constitutional exercise of Congress’s powers, and as a result, the court deemed it unnecessary to address whether the CTA violated the First, Fourth, or Fifth Amendments of the Constitution, as alleged by the Plaintiffs.

What this means

Since the case was exclusively concerned with legal matters and decided through summary judgment based on motions submitted by the parties, the appeals court will conduct a de novo review. This means there will be a fresh examination of all aspects of the case, as if it were being heard for the first time.

In light of these developments, business owners and management are advised to adhere to any forthcoming filing deadlines mandated by the CTA.

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