Alabama District Court Finds the Newest Requirements of the Corporate Transparency Act (“CTA”) Unconstitutional
By: Bruce Easmunt and Anna Mancino
Shortly after the new CTA Beneficial Owner Information (“BOI”) reporting requirements came into effect, an opinion coming out of the Northern District of Alabama found those same requirements unconstitutional. Judge Liles C. Burke of the Court explained in his opinion, issued on March 1st, 2024, how Congress had managed to exceed its authority under its broad powers and overregulated corporate entities in the name of national security.
This ruling does not eliminate the need for certain community associations to comply with the CTA. The injunction entered by Judge Burke only allows the plaintiffs in the case to refrain from filing a BOI report; associations that meet the requirements of a reporting company should still prepare to file a report prior to January 1st, 2025. However, the opinion offers an avenue forward and a campaign platform to argue for and obtain a more limited application of the CTA. We will continue to monitor and advise our clients as to their reporting obligations under the CTA.
While finding that the CTA was created with Congress’ best intentions to protect the United States, Judge Burke held that the CTA and its requirements are not justified under Congress’ Tax, National Security or Commerce powers (even with the support of the Necessary and Proper Clause adding additional leverage). From the statute itself missing the word “commerce”, to the lack of necessity to collect the beneficial owner information at all, the CTA was summarized by the Court to be flawed on multiple levels, allowing it to provide for the extensive overregulation of more than for-profit corporate entities. The overregulation permitted by the CTA is an issue that practitioners in the community association field have raised since the announcement of the requirements in 2023.
The opinion alludes to the idea that through enacting the CTA, Congress was attempting to overturn every rock in the corporate vicinity that could hide nefarious financial actions, without first conducting a survey of which corporate-related and corporate-adjacent entities were actually susceptible to that kind of activity. This unfortunately included community associations. While Community Associations Institute and others have been advocating for an exemption for homeowners’ associations and condominium associations alike, Congress has not exempted those entities. As of today, certain community associations are still required to file a BOI report by the January 1, 2025 deadline.[1]
The Alabama case discussed above is NBSA v Jannet Yellen, N.D. Ala., No. 5:22-cv-01448-LCB, 3/1/24
[1] Legislation is currently pending which may extend the filing deadline into the year 2026. As of the writing of this article, however, the filing deadline for most entities remains January 1st, 2025.