On March 1, 2024, a federal district court ruled in National Small Business United v. Yellen that the Corporate Transparency Act (CTA), about which we wrote earlier, is unconstitutional. The U.S. Treasury Department has appealed the ruling to the 11th Circuit Court of Appeals.
In his opinion, Hon. Liles Burke wrote:
The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. ... Yet the inverse is also true—… even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.
The gist of the opinion is that, by triggering a reporting requirement on the basis of forming a legal entity under state law, Congress has trespassed without authority on subject matter that the Constitution reserves to the States.
National Small Business United. v. Yellen has the force of law only in Alabama, and possibly only for the parties to the litigation. It could be years before the Constitutionality of the CTA is finally resolved. Meanwhile, legal entities and their owners must decide what to do about their CTA compliance obligations.
The rule adopted under the CTA gives entities in existence as of December 31, 2023 all of calendar year 2024 to make their CTA filings, so there should be no rush for those entities to proceed. Even though the filing is not a heavy lift, pre-existing entities might wish to sit on the sidelines to see what develops during the year. For entities formed in 2024 outside of Alabama, the CTA still requires a filing within 30 days of the formation of the entity. The CTA is larded up with penalties for non-compliance, so new entities should file in compliance with the statute rather than assume that the courts of appeals and/or the Supreme Court will agree with Judge Burke in Alabama.
