CORPORATE TRANSPARENCY ACT HELD UNCONSTITUTIONAL

The Corporate Transparency Act (“CTA”) requires each person to disclose to the Financial Crimes Enforcement Network (“FinCen”), acting on behalf of the United States Treasury Department, the beneficial owner and applicant for each entity to be formed by a filing with a state or an Indian tribe as well as for each foreign entity seeking to register to do business in the jurisdiction.  Although the Justice Department argued the legislature has the power to require disclosure under the powers delegated to it by the commerce clause and taxing authority, on March 1, 2024, Federal District Judge Liles C. Burke expressed his disagreement by declaring the law unconstitutional.  

The Tenth Amendment to the United States Constitution makes it clear that the federal government can only operate under the powers delegated to it.  Judge Burke pointed out that the founders discussed the idea of moving the power of incorporation to the federal government and decided against it. Further, the Judge opined that the act of forming a corporation was not the same as engaging in interstate or foreign commerce.  Many corporations are formed for non-commercial purposes or intra state operations 

The Court opined, “Because the CTA does not regulate commerce on its face, contain a jurisdictional hook, or serve as an essential part of a comprehensive regulatory scheme, it falls outside of Congress’ power to regulate non-commercial, intrastate activities.” 

The Court also rejected the Government’s argument that congress had the power to enact this law under its taxing authority.  Except for penalties for failure to comply, the statute is not revenue producing.  The fact that FinCen could use the information to search for untaxed amounts is too tenuous a connection the government’s taxing authority. 

In the end, Judge Burke granted summary judgment striking the CTA as unconstitutional because it cannot be “justified as an exercise of Congress’ enumerated powers.”  National Small Business United v Yellen. Case NO. 5:22-cv-1448-LCB.  US District Court. Northern District of Alabama. Northeastern Division.

 ^{1. Keven Danow is an attorney representing members of all three tiers of the Beverage Alcohol Industry and member of the firm of Danow, McMullan & Panoff, P.C. 275 Madison Ave, NY, NY. 10022.  (212 3703744). Website: thedanowgroup.com; email: kdanow@thedanowgroup.com. This article is not intended to give specific legal advice. Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.}