Recent Court Decisions on the Constitutionality of the Corporate Transparency Act

The Corporate Transparency Act (CTA) aims to combat money laundering, terrorist financing, and other illicit activities by requiring businesses to disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). However, the CTA has faced significant legal challenges, with recent court decisions questioning its constitutionality.

Nationwide Injunction by the Eastern District of Texas

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the CTA. Judge Amos Mazzant found that the CTA likely violates the Constitution, infringing on First and Fourth Amendment rights and disrupting the balance of power between federal and state jurisdictions. The court highlighted the significant compliance costs for businesses, projected to exceed $22 billion in the first year alone.

Decision by the Northern District of Alabama

Earlier in 2024, the U.S. District Court for the Northern District of Alabama also declared the CTA unconstitutional. The court found that the CTA exceeds Congress's constitutional powers, particularly under Article I, and violates multiple constitutional amendments. The court enjoined the government from enforcing the CTA against the plaintiffs.

Implications and Future Developments

These court decisions highlight the ongoing legal battles surrounding the CTA and its impact on businesses across the United States. The nationwide injunction and the ruling in Alabama underscore the significant constitutional concerns raised by the CTA's requirements. As the government appeals these decisions, the future of the CTA remains uncertain.

The U.S. Court of Appeals for the Fifth Circuit has vacated its prior order staying the nationwide injunction and is set to hear an expedited appeal on the merits of the case in March 2025. Additionally, the government has appealed to the U.S. Supreme Court to eliminate the nationwide injunction. These upcoming legal proceedings will be crucial in determining the ultimate fate of the CTA and its enforcement.

Guidance for Businesses on Filing Deadlines

Given the current legal landscape, businesses should be aware of the following guidance regarding filing deadlines under the CTA:

1. Suspension of Filing Requirements: As of December 26, 2024, the nationwide injunction against the CTA is back in effect, meaning businesses are not currently required to file beneficial ownership information with FinCEN. However, companies may voluntarily submit their reports if they choose to do so.
2. Extended Deadlines: If the injunction is lifted, businesses will need to comply with the following deadlines: Existing Companies: Businesses created or registered before January 1, 2024, must file their initial beneficial ownership information (BOI) reports by January 13, 2025. New Companies: Businesses created or registered on or after January 1, 2025, will have 30 days from their creation or registration date to file their BOI reports.
3. Disaster Relief Extensions: Companies affected by natural disasters may have extended deadlines beyond January 13, 2025. These businesses should follow the later of the applicable deadlines.
4. Stay Informed: Businesses should regularly check FinCEN's website for updates on the status of the CTA and any changes to filing requirements.

The recent court decisions against the CTA reflect deep constitutional concerns and the ongoing debate over the balance of federal and state powers in regulating corporate transparency. Businesses and legal experts alike will be closely watching the developments in these cases as they unfold in the coming months.