While real estate practitioners are struggling to implement office procedures to accommodate the reporting requirements of the new Federal Corporate Transparency Act (CTA), one court has held the Act to be unconstitutional.

National Small Business Association v. Yellen, Case 5:22-cv-1448-LCB (U.S. District Court, Northern District of Alabama, March 1, 2024) held that the Constitution does not give Congress the power to regulate millions of entities and their stakeholders the moment they obtain formal corporate status from a state.  The government had argued that the foreign affairs power and the Commerce Clause grant the requisite authority because the purpose of the CTA is to prevent money laundering and tax evasion, especially by offshore actors.

The case begins with this language, “The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL.”  In other words, the Constitution does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. This opinion states that the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Even in the pursuit of sensible and praiseworthy ends, Congress may enact smart laws that violate the Constitution. This case illustrates that principle, according to the Northern District of Alabama.

We’ll have to wait and see how appellate courts address this issue. In the meantime, we’ll have to comply!