CORPORATE TRANSPARENCY ACT REGISTRATION STILL REQUIRED
If It Is Too Good To Be True, It Probably Is
Earlier this week Rembaum’s Association Roundup reported that the Corporate Transparency Act (the “CTA”) appeared dead on arrival due to the holding in The National Small Business United, d/b/a the National Small Business Association, et al v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al., Case No. 5:22-cv-1448-LCB, United States, District Court, Northern District of Alabama, Northeastern Division entered on March 1, 2024. However, unknown at the time of publication was that the Court also entered a three sentence Final Order which made clear the CTA was ONLY unconstitutional as applied against the Plaintiffs in the aforesaid case. Therefore, whether the CTA will be later found unconstitutional against all corporate entitles in the United States remains to be seen. With this in mind, at least as of today, it would appear that all community associations are still required to comply with the disclosure requirements of the CTA by December 31, 2024. Please be sure to check with your attorney no later than the beginning of the fourth-quarter of this year, 2024, as to whether compliance is still required. If so, because of the significant civil and criminal penalties for noncompliance, be sure to do so. Of course, as additional information comes to our attention, we will pass it along to our readers.
The prior article is as follows:
THE CORPORATE TRANSPARENCY ACT FOUND UNCONSTITUTIONAL
In the case titled, The National Small Business United, b/b/a the National Small Business Association, et al v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al., Case No. 5:22-cv-1448-LCB, United States, District Court, Northern District of Alabama, Northeastern Division entered on March 1, 2024, the court found the CTA to be unconstitutional.
By way of background, in 2021, Congress passed the 1500-page National Defense Authorization Act (the “NDAA”) and included within it, the 21-page Corporate Transparency, Act (the “CTA”). In brief, the CTA would have required just about every entity registered with the secretary of state, in each state, which includes community associations, to provide certain information about its “beneficial owners”, in this case, board members and officers, to include the name, date of birth, current address, and an identification number from a driver’s license, state ID card or passport and a copy of such document. The purpose of the CTA was aimed to prevent financial crimes, money, laundering, tax, evasion, and even funding of terrorism. While there are limited exemptions, community associations were not included, notwithstanding lobbying efforts of the Community Association Institute lobbyists. Failure to comply with the CTA can lead to expensive civil financial penalties and significant time in federal prison.
In finding the CTA unconstitutional, the Northern District of the Northeastern Division Alabama appellate court noted that “Congress sometimes enacts smart laws that violate the [United States] Constitution…this court’s job is to consider whether the CTA follows the [United States] Constitution, not whether it is good policy.” The wise court asks, “does Congress have authority under the Commerce Clause [of the United States Constitution] to regulate non-commercial, intrastate activity, when certain entities, which have availed themselves of the state’s incorporation laws, use channels of commerce, and their anonymous operations substantially affect interstate and foreign commerce? The Supreme Court’s Commerce Clause decisions all point to the same conclusion: No.”
The written opinion in this case makes for great reading most especially for those interested in Constitutional law analysis. At the end of the day, the drafters of the CTA and the lawyers for the Secretary of the Treasury defending the CTA failed to take into account that the CTA does not regulate economic or commercial activity on its face which is generally required to rely on the Commerce Clause of the United States Constitution to justify the constitutionality of certain laws. The court even gently points out how the CTA could have been made constitutional through better drafting, rather than “inartful drafting” and even points out, relying on a prior Supreme Court case “that it is beyond this Court’s province to rescue Congress from its drafting errors, and to provide for what we might think is the preferred result.” Lamie v. U.S. Tr., 540 U.S. 526 (2004).
While this is just the beginning of the CTA appellate fight, and no doubt the government will appeal to the 11th Circuit Court of Appeals, and then the loser of that challenge will likely appeal to the United States Supreme Court, at least for now the CTA’s registration requirements due by December 31, 2024, are dead on arrival as to the Plaintiffs in the aforesaid case, only. Whether the holding will be later broadened to include all other corporate entities is unknown at this time.
(Written by Jeffrey Rembaum (Kaye Bender Rebaum) and reprinted with permission from the January 2024 edition of the “Florida Community Association Journal“.)
