On March 1, 2024, the United States District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (the “CTA”) is unconstitutional because it exceeds Congress’s enumerated powers under the United States Constitution. The CTA, enacted on January 1, 2024, mandates the creation of the Beneficial Ownership Secure System database and requires certain entities—including certain health care entities—to disclose information regarding beneficial ownership to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.
For detailed information about the CTA’s requirements, please review our previous article.
Overview
The plaintiffs in the case, the National Small Business Association and one of its members, sued in federal court seeking a preliminary injunction against the implementation of the CTA. The Alabama District Court went on to side with the plaintiffs, rejecting the government’s arguments that Congress had the authority to enact the CTA. The decision specifically notes that the CTA exceeds the Constitution’s limit on Congress’s legislative power and lacks a sufficient nexus to any enumerated power, specifically citing to the “Commerce Clause,” the “Necessary and Proper Clause,” Congress’s taxing powers and its power over foreign affairs and national security.
Practical Takeaways
This preliminary injunction applies only to the plaintiffs in this case and, as a matter of federal procedure, does not apply to other entities required to report under the CTA. As such, other reporting companies are still bound by the CTA. Health care entities should continue to consult with counsel about the CTA’s potential applicability to their entity.
While other federal courts are not bound by the Northern District of Alabama’s ruling, this may inspire other litigants to file lawsuits elsewhere. Nonetheless, the government will likely appeal this decision to the U.S. Court of Appeals for the Eleventh Circuit and may pursue an interim stay of the ruling.
As this matter progresses, Hall Render will continue to monitor the situation and the consequences for the CTA and reporting obligations for health care entities.
If you have any questions about this topic, please contact:
- John Bowen at (317) 429-3629 or jbowen@hallrender.com;
- Eric Speer at (317) 429-3634 or espeer@hallrender.com;
- Joseph Ho at (317) 429-3641 or jho@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
