Corporate Transparency Act Faces Yet Another Constitutional Challenge

Duane Morris LLP


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While Judge Burke's decision in the Alabama case explicitly states that it is not based on the Fourth and Fifth Amendments and the various rights and concepts arising thereunder, the allegations...
United States Government, Public Sector
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As anticipated by many following the March 1 ruling of Judge Liles C. Burke of the U.S. District Court for the Northern District of Alabama declaring the Corporate Transparency Act (CTA) unconstitutional for exceeding the constitutional limits on congressional power, another action has been filed in another federal district court challenging the constitutionality of the CTA. On March 26, the Small Business Association of Michigan, the Chaldean American Chamber of Commerce and other plaintiffs filed a complaint in the Western District of Michigan challenging the CTA on a variety of constitutional grounds.

While Judge Burke's decision in the Alabama case explicitly states that it is not based on the Fourth and Fifth Amendments and the various rights and concepts arising thereunder, the allegations of the complaint filed in Michigan emphasize the assertion of those rights and concepts. The Justice Department, on behalf of the Treasury Department's Financial Crimes Enforcement Network (FinCEN), filed a Notice of Appeal to the Eleventh Circuit Court of Appeals in the Alabama case on March 11. FinCEN then announced its position that, pending a resolution of the case, the injunctive relief granted by Judge Burke applies only to the plaintiffs before the court in that case. If the plaintiffs in the newly filed Michigan case succeed in convincing the district court that the CTA is unconstitutional, it is likely that FinCEN would appeal such a ruling to the Sixth Circuit Court of Appeals. On the other hand, if the plaintiffs in the Michigan case do not succeed in the district court, it is likely that they will appeal in response.

Irrespective of how the Michigan case is decided, it is increasingly probable that the ultimate decision regarding the constitutionality of the CTA will be made by the Supreme Court of the United States if there is a split in the circuit court decisions and Congress does not step in to revise the text of the act to satisfy its constitutional critics. It is also likely that other plaintiffs in other states will bring additional challenges and that, if those challenges succeed, FinCEN will continue to take the position that the CTA will apply to all entities and persons not specifically covered by a judicial decision concerning it.

Accordingly, the suggestion that we made following the Northern District of Alabama decision remains unchanged at this time despite the new constitutional challenge being asserted in the Western District of Michigan. That is, for entities newly created or first registered on or after January 1, 2024 (that are not part of the limited group of plaintiffs in the Alabama case), the required CTA filing should be timely made within the requisite 90-day period (30 days for those that will be formed in 2025 or later). For entities formed or first registered before January 1, 2024 (whose CTA reporting deadline is no later than January 1, 2025), our position is that (1) the required CTA information should be collected by the reporting company, but (2) the reporting company may wish to delay the FinCEN filing itself for now, in hopes that greater clarity about the issue is provided by FinCEN or the courts before year-end.

About Duane Morris

Duane Morris is actively monitoring developments regarding the CTA and issuing Alerts on the topic. Duane Morris will provide advice to clients related to CTA compliance only when explicitly engaged to do soin writing.

For More Information

If you have any questions about this Alert, please contact Thomas R. Schmuhl, Jocelyn Margolin Borowsky, Joel N. Ephross, Bruce H. Jurist, Hope P. Krebs, Lee J. Potter Jr., any of the attorneys in our Corporate Transparency Act Group, the attorney in the firm with whom you are regularly in contact, or Michael A. Gillen or any of the professionals in the Tax Accounting Group.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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