A U.S. District Court of the Northern District of Alabama Judge in Huntsville recently granted summary judgment to the National Small Business Administration (NSBA) in its challenge of the constitutionality of the Corporate Transparency Act (CTA).
The ruling by Judge Liles Burke to strike down the CTA is a “victory for law-abiding small-business owners everywhere who would have been forced to disclose their sensitive personal information to a government database,” according to the small business advocacy group.
1819 News reported in January about a new requirement under the CTA whereby most Alabama small business owners would be required to share ownership information about their companies or risk being subject to civil and criminal financial penalties or imprisonment under the new federal law.
"The CTA has from the very beginning been poor policy that unfairly targets America's small businesses," Todd McCracken, President and CEO of NSBA, said in a statement on Monday. "This ruling justifies the concerns of millions of American businesses about how the CTA is not only a bureaucratic overreach, but a Constitutional infringement."
Bruce Ely, a tax attorney and partner with the Bradley Arant Boult Cummings law firm, told 1819 News that most attorneys and CPAs are still advising their clients to comply with the Corporate Transparency Act despite the ruling on Friday.
"I was surprised by their announcement yesterday afternoon. There’s no doubt the federal government will appeal the ruling and we expected the DOJ to ask the court to impose a temporary stay on the ruling until the 11th Circuit Court of Appeals issues its ruling or possibly the U.S. Supreme Court weighs in," Ely said. "Since this case was not a class action it only directly affects those who were NSBA members as of March 1 plus the individual plaintiff who was also a member. We expect several copycat lawsuits to be filed now and I’ll bet at least one of them will seek nationwide class certification. In the meantime, I understand that most attorneys and CPAs are advising their clients to continue to comply with the Act. The appeal process could take years and this ruling literally only applies to particular businesses and investors located in the Northern District of Alabama."
The challenge to the CTA began in 2022 when the NSBA and Huntsville business owner Isaac Winkles first brought their case before the District Court. While the case was being considered in court, the U.S. Treasury Department was implementing the CTA despite millions of small-business owners not knowing about the requirements of the CTA. The database is ripe for data security issues and confusion, which could saddle small-business owners with hefty penalties or even jail time, according to NSBA.
"As the court noted, the ultimate goals of the CTA, countering money laundering and terrorism financing are laudable," John Neiman, counsel for the NSBA and Winkles, said. "But as the court also noted, the Constitution sets limits on what Congress can do to achieve even the most laudable of goals, and Congress violated those limits here. Congress can find a way to achieve these goals without exceeding the limits on its powers under the Constitution."
The CTA was part of the National Defense Authorization (NDAA) for fiscal year 2021, passed on Jan 1, 2021, and went into effect on January 1.
"The judge's decision is an opportunity for Congress to go back to the drawing board and find a solution that will truly protect Americans from bad actors," McCracken said. "The CTA simply will not accomplish the goal of stemming money laundering – what it does is overstep the bounds of privacy, the law, and common sense at the expense of America's small businesses."
Celebrating over 85 years in operation, NSBA is a nonpartisan organization advocating for America's entrepreneurs. NSBA's 65,000 members represent every state and every industry in the U.S.
A spokesman for the U.S. Treasury Department on Monday said, "On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs."
"FinCEN will comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: 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). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time," the Treasury Department spokesman said.
To connect with the author of this story or to comment, email caleb.taylor@1819News.com.
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