US District Court Declares Corporate Transparency Act Is Unconstitutional

The US District Court for the Northern District of Alabama issued a landmark decision on March 1, 2024 in which it held that the Corporate Transparency Act (CTA) is unconstitutional. In the opinion, Judge Liles Burke held that the CTA does not fall within Congress’s powers to regulate commerce, oversee foreign affairs and national security, or impose taxes and related regulations.

In the opinion, the court evaluated the US government’s justifications for Congress’s enactment of the CTA and ultimately declared that the CTA is unconstitutional because it “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]

In its final judgment, the court issued a narrow permanent injunction, enjoining the defendants (which includes the federal government and any agency or employee acting on behalf of the United States) from enforcing the CTA against the plaintiffs Isaac Winkles and National Small Business United d/b/a National Small Business Association (and presumably members of National Small Business United).

Next Steps

Given the court’s unexpected ruling, we expect the government to appeal the decision to the US Court of Appeals for the Eleventh Circuit and seek an order staying the injunction pending appeal. The injunction against enforcement only applies to the plaintiffs in the Alabama litigation, and despite the holding that the CTA is unconstitutional, the government is entitled to continue to enforce the statute against other entities. As a result, our recommendation to companies regarding the CTA remains unchanged. Until clearer guidance is provided, companies should continue to comply with the CTA’s BOI reporting requirements. Morgan Lewis will continue to monitor any developments pertaining to this case as they arise.