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Federal District Court Rules Corporate Transparency Act Unconstitutional

Steven WalkerMarch 5, 2024

On March 1, 2024, the United States District Court for the Northern District of Alabama issued a Memorandum Opinion striking down the Corporate Transparency Act (as applied to plaintiffs) and ruling that the law “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”[1] This ruling is the latest development since the Corporate Transparency Act was enacted in 2021 to help the government combat those using corporate forms to hide illicit activities like money laundering.

As we previously reported, the Corporate Transparency Act imposes new reporting obligations on those who form certain entities.[2] It also imposes civil and criminal penalties for those who fail to comply.[3] Currently, FinCEN has stated that it will “comply with the court’s order for as long as it remains in effect” and that it is not enforcing the Corporate Transparency Act against the plaintiffs in the action.[4] But the scope of this new District Court ruling and the government appeal that is almost certainly guaranteed to follow will likely lead to even more uncertainty for small and large businesses attempting to assess their compliance obligations. Additionally, this ruling could affect versions of the Corporate Transparency Act that states have or are attempting to enact. For instance, back in 2023, California proposed its own version of the Corporate Transparency Act for non-California corporations and LLCs although this is yet to become law.[5] Those wondering about their current compliance obligations should contact qualified and competent attorneys.

[1] Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448-LCB (N.D. Ala. 2022).

[2] See Philip Wolf and Steven Walker, “Corporate Transparency Act – New Civil Penalties,” Law Offices of Steven L. Walker (Jan. 29, 2024). See also Philip Wolf, “Test Your Knowledge of 2023 Tax Developments,” Tax Notes, Feb. 5, 2024.

[3] Id.

[4] FinCEN, “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Mar. 04, 2024.

[5] See California Senate Bill 738.