District Court Judge Declares CTA Unconstitutional

The Corporate Transparency Act (CTA) requirements and how to comply with them.

If you are like many small businesses across the nation, you have spent the last several months learning about the Corporate Transparency Act (CTA) requirements and how to comply with them. However, on Friday, March 1, U.S. District Court Judge Liles C. Burke (Northern District of Alabama, Northeastern Division) reviewed the CTA and determined it was unconstitutional. So, now—at least for a while—you can breathe a sigh of relief.

What the CTA calls for

As you likely know, the CTA would require millions of businesses to disclose details about their owners, officers, and other significant stakeholders to the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury. The required information would include company names, addresses, registration jurisdictions, and tax ID numbers; names, birthdates, addresses, and ID numbers of beneficial owners; and names of individuals who filed the company registration documents or had someone else do so.

The CTA was part of the 1,500-page National Defense Authorization Act (NDAA), which was passed in 2021. The CTA took effect in January 2024 and was intended as a tool to enforce transparency in business ownership and prevent terrorism financing, tax fraud, money laundering, and other illicit activities. Companies failing to comply or keep their information current would be subject to criminal and civil penalties.

For all the CTA’s good intentions, many believe that it would burden law-abiding companies to spend hours and hours reporting to FinCEN while doing little to prevent illegal practices.

What Judge Burke ruled

In his 53-page opinion, Judge Burke granted a summary judgment to the National Small Business Association (SBA). This ruling ended a 16-month legal battle led by the SBA and supported by businesses throughout the United States.

He summarized his decision this way:

Does the Constitution give Congress the power to regulate those millions of entities and their stakeholders the moment they obtain a formal corporate status from a State? The Government thinks so. While it acknowledges that Congress “can exercise only the powers granted to it,” the Government says that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations.

The Government’s arguments are not supported by precedent. Because the CTA 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, the Plaintiffs are entitled to judgment as a matter of law. As a result, the Court GRANTS the Plaintiffs’ motion for summary judgment and DENIES the Government’s motion to dismiss and alternative cross-motion for summary judgment.

What lies ahead

Many expect that the Department of Justice will appeal this decision, so this matter is probably far from over. But this ruling has brought attention to the issue and may bolster the position of our nation’s small businesses.

Stay tuned for more developments in the months ahead.

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information, you can contact Trent at 866.303.5868 or trent.cotney@arlaw.com.