Various industry groups have filed lawsuits in multiple federal districts challenging the constitutionality of the Corporate Transparency Act (“CTA”). The first such suit, filed in the Northern District of Alabama, resulted in a ruling by the District Court that the CTA was unconstitutional because Congress lacked the authority to enact the CTA. The government appealed this ruling, and the Eleventh Circuit heard oral argument on Friday, September 27. As we discuss below, the tenor of the argument suggests, although hardly compels, the conclusion that the Eleventh Circuit will reverse the holding of the District Court.
Further, one week prior to the oral argument, on September 20, the District of Oregon rejected a motion for preliminary injunction to enjoin enforcement of the CTA, finding in part that plaintiffs had failed to show a likelihood of success on the merits in regards to a broad spectrum of constitutional claims. Although the District of Oregon did not issue a dispositive ruling on the merits, given the particular procedural posture of the case, the tenor of the opinion strongly suggests that plaintiffs’ lawsuit faces an uphill battle, at best.
Given the importance of the CTA and the existence of several other similar lawsuits in other federal districts challenging the CTA, both of these developments have been watched closely. FinCEN has estimated that over 30 million existing entities need to file reports regarding their beneficial owners (“BOs”) under the CTA by January 1, 2025. FinCEN also has indicated that, to date, only a small percentage of covered entities have done so. To the extent that entities may have been waiting to file their reports until a more clear picture of the CTA litigations materializes, they presumably should stop waiting. Although it is possible that a circuit split could develop, and that the U.S. Supreme Court ultimately could address and resolve the constitutionality of the CTA, the CTA still remains in force—with the current exception of entities affected by the District of Alabama ruling—and presumably will remain in force past January 1, 2025.
Continue Reading Corporate Transparency Act Litigation Update: Eleventh Circuit Hears Argument, and District of Oregon Rejects Preliminary Injunction Enjoining CTA Enforcement