U.S. District Judge Rules Corporate Transparency Act Is Unconstitutional
A federal district judge in Alabama on March 1 issued an opinion finding that the Corporate Transparency Act (CTA) is unconstitutional on the grounds that Congress supposedly exceeded certain limits on its powers.
The decision was handed down in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), which was a challenge brought by the National Small Business Association and one of its individual members against the Secretary of the Treasury. The ruling prevents the Treasury Department from enforcing the CTA against the plaintiffs. In a release, FinCEN said it will comply with the court’s order for as long as it remains in effect.
Under the CTA, companies must report information to the U.S. government about the individuals who ultimately own or control the company. The law went into effect Jan. 1, but businesses have until the end of the year to file reports to Treasury.
It’s been reported the government will appeal to the U.S. Court of Appeals for the 11th Circuit to try to get it reversed. While the impact of the case is limited, there’s a good chance small business groups file copycat cases in other friendly jurisdictions.
The CTA was passed in 2021 to curtail illicit finance flowing through the United States. The U.S. Treasury estimated this to be equivalent to 2% of U.S. GDP, or approximately $460 billion each year. Treasury Secretary Janet Yellen has said, “There is a good case that, right now, the best place to hide and launder ill-gotten gains is actually the United States.”
In addition to this rule, the Treasury has issued a notice of proposed rulemaking that would require certain people involved in real estate closings and settlements to report information to the agency about all-cash residential transactions nationwide involving legal entities and trusts.
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