On March 1, 2024, the US District Court for the Northern District of Alabama delivered a significant blow to the Corporate Transparency Act (CTA), ruling it unconstitutional. The decision, issued by Judge Liles Burke, challenges the Act’s validity on grounds of exceeding Congress’s constitutional powers.

The Court’s Decision: Unconstitutional Overreach
In a landmark opinion, Judge Burke asserted that the CTA’s scope surpassed the boundaries of Congress’s authority to regulate commerce, oversee foreign affairs, ensure national security, or levy taxes. The court meticulously evaluated the government’s justifications for enacting the CTA and concluded that it lacked a substantial connection to any enumerated power, rendering it an unconstitutional exercise of legislative authority.

Implications of the Ruling: Narrow Injunction Issued
The court’s ruling culminated in a narrow permanent injunction, specifically targeting the defendants—the federal government—and barring enforcement of the CTA against the plaintiffs, including Isaac Winkles and the National Small Business Association. Notably, this injunction applies solely to the parties involved in the Alabama litigation, leaving the government free to enforce the CTA against other entities.

Next Steps: Anticipating an Appeal
With the government likely to challenge the decision, the case is expected to proceed to the US Court of Appeals for the Eleventh Circuit. It is anticipated that the government will seek an order staying the injunction pending appeal, signaling a protracted legal battle over the constitutionality of the CTA.

Continued Compliance Amid Uncertainty
Despite the court’s ruling, companies are advised to maintain compliance with the CTA’s beneficial ownership information (BOI) reporting requirements. The injunction’s limited scope means that enforcement remains intact for entities not covered by the Alabama litigation. Until clearer guidance emerges, adherence to the CTA’s mandates is prudent.

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