Important Update: Federal District Court in Alabama Deems Corporate Transparency Act Unconstitutional, Ceases Enforcement Against Plaintiffs
On March 1, 2024, the U.S. District Court for the Northern District of Alabama rendered an opinion in the case of National Small Business United d/b/a the National Small Business Association (NSBA) v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), holding as a matter of summary judgment that: (1) the NSBA has standing to challenge the Corporate Transparency Act’s (“CTA”) constitutionality; and (2) the CTA is unconstitutional because it exceeds Congress’s enumerated legislative powers under the Constitution.
In its definitive ruling in favor of the plaintiffs, the Court issued a permanent injunction against the Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN), restraining them from enforcing the provisions of the CTA solely against specified plaintiffs such as the NSBA and its members (as of March 1, 2024). Importantly, the Court did not explicitly restrict the Treasury or FinCEN from enforcing the CTA against beneficial owners or entities not involved in the case, nor did they make a ruling as to the constitutionality of the CTA on any other grounds.
Therefore, it is essential to understand that this ruling does not relieve entities not involved in the case from their obligation to comply with the CTA.
Here are some key points to consider:
- FinCEN Guidance: Recently, FinCEN issued guidance stating that they will comply with the Court’s order and refrain from enforcing the CTA against the specific plaintiffs mentioned in the case. Nevertheless, it’s important to note that this stance does not alter the compliance responsibilities for entities who are not a party in this specific case.
- Ruling and Compliance Obligations: The Court’s decision temporarily relieves the plaintiffs but does not alter the compliance obligations for other entities subject to the CTA. Therefore, it remains crucial for all parties to continue adhering to the CTA requirements unless advised otherwise by legal counsel.
- Appeal: As of March 11, 2024, the United States Department of Treasury has filed an appeal, which could result in further legal scrutiny and potentially reversing the District Court’s decision. It’s essential for all parties to stay informed about the case’s progress and be prepared for any subsequent legal developments.
To ensure continued compliance with regulatory requirements, we recommend the following:
- Stay Informed: Keep abreast of updates regarding the case and any guidance issued by FinCEN regarding the impact of the ruling. Be sure to sign up for Doss Alerts here!
- Maintain Compliance: Adhere to the mandates outlined in the CTA and other pertinent regulations. This entails the ongoing collection of requisite data for the Beneficial Ownership Information Report (“BOI”) and readiness to submit it within the designated timeframes. Doss Law can offer a streamlined process for BOI filings, leveraging advanced software, expertise, and efficient systems.
- Monitor Legal Developments: Doss Law remains vigilant for any changes in legal requirements or reporting obligations arising from future rulings or regulatory guidance. As we closely track the evolution of the case, our firm will alert clients of any pertinent updates.
While the recent District Court ruling may temporarily relieve specific parties in that case, it is vital to remain diligent and proactive in fulfilling compliance obligations. Should you have any questions or require further assistance navigating these legal complexities, please do not hesitate to contact Jackellyn Davis at Jackellyn@DossLaw.com. We are here to support our clients in ensuring compliance and addressing any concerns.
