Should I Stay or Should I Go – Federal Judge Rules Corporate Transparency Act Unconstitutional
Updated March 6, 2024
This week I intended this post to be about exemptions from reporting under the Corporate Transparency Act (CTA). However, late on Friday, March 1, 2024, Alabama Federal District Court Judge Liles C. Burke dropped a bombshell in an already messy situation. As I reviewed the ruling I thought about the chorus from the song, Should I Stay or Should I Go, by the legendary British punk rock band, The Clash.
Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So ya gotta let me know
Should I cool it or should I blow?
In the case of National Small Business United v. Janet Yellen, Judge Burke in a 53 page decision ruled that the CTA exceeded the limits of Congressional authority under the United States Constitution and was therefore unconstitutional. The decision held that the CTA is not authorized under the Necessary and Proper Clause and exceeds Congress’ authority under the Commerce Clause. The decision did not rule on the arguments that the CTA also violated the First, Fourth, and Fifth Amendments.
On its face, this decision only benefits the Plaintiff and its approximately 65,000 member businesses, not necessarily the millions and millions of other businesses covered by the CTA. The Financial Crimes Enforcement Network (FinCEN) of the Treasury Department has made clear its position that the ruling only applies to “Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024).” It seems likely that the decision will be appealed and a stay of the judgment sought while the appeal is pending. Next stop is the 11th Circuit Court of Appeals and ultimately it could head for the Supreme Court. Further, Congress could follow the court’s suggestion and simply tweak some of the statutory language to comply (probably easier said than done in the current gridlock of Washington D.C., but CTA was originally a bipartisan piece of legislation). There is no current indication that there will be any nationwide pause of reporting requirements.
So, what should you do now? Given the breadth and scope of the CTA and the potential penalties involved, we have been very proactive with our clients in encouraging them to comply with the CTA, sooner rather than later. Like the song says, if you go there will be trouble, but if you stay it may be double. At this point, you may be tempted to hit pause. For companies in existence before January 1, 2024, you have a little time to get away with this, but not a lot. For companies created in 2024, your deadline is only 90 days from organization, and such a strategy would be difficult. Starting on January 1, 2025, that deadline is decreased to 30 days. Given FinCEN’s statement and the fact that appeals are unlikely to be resolved prior to filing deadlines, our recommendation is that any company not involved in the litigation should proceed with timely reporting of beneficial ownership information under the CTA.
As always, this blog post should not be considered legal advice, and you should consult with a competent attorney directly about your individual situation.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.