On Friday, an Alabama federal judge ruled that the Corporate Transparency Act (CTA)–the law that authorized Beneficial Ownership Information (BOI) reporting–is unconstitutional. As of today, this decision impacts one business in northern Alabama, but given an appeal is a certainty this could impact the BOI reporting regime.
Judge Liles Burke ruled that the CTA fell afoul of Congress’ powers. “The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers. This conclusion makes it unnecessary to decide whether the CTA violates the First, Fourth, and Fifth Amendments.” He opened the decision noting,
The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.
As of today, only the one company (and possibly the Northern District of Alabama) are impacted by this decision. However, it’s a certainty that the decision will be appealed to the 11th Circuit Court of Appeals. If that court upholds this ruling, BOI reporting will likely be dead.
To date, we’ve advised most of our clients to hold off on BOI reporting (unless they formed entities this year)–not because of possible constitutional issues; rather, we’re still waiting on guidance from FinCEN on community property issues related to BOI reporting. Entities in existence as of 2024 have until January 1, 2025 to report. Friday’s ruling adds another reason to delay BOI reporting.
Tags: BOI