Recent Decision Finding CTA Unconstitutional Casts Doubt on Its Fate

By Nicole D. Miller

As we recently discussed in this blog post, homeowner and condominium associations (“Community Associations”), are subject to the detailed and complicated reporting requirements of the federal Corporate Transparency Act (CTA). The compliance deadlines for Community Associations to disclose their “beneficial ownership information” are approaching. However, a March 1 decision by a U.S. district court judge in Alabama, issued just 60 days after the CTA’s effective date, has called into question the ultimate enforceability and constitutionality of the law.

In National Small Business United v. Yellen, Judge Liles C. Burke granted summary judgment in favor of the plaintiffs, finding that “the CTA is unconstitutional because it ‘exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.'”

Critically, the court’s order enjoining enforcement of the CTA applies only to the plaintiffs, including the National Small Business Association (NSBA) and its approximately 60,000 members. While the decision is limited to the plaintiffs in the case, the decision is seen as a positive one from the perspective of Community Associations as it sets groundwork for other courts to follow suit concerning enforceability. Community Associations throughout the country have serious concerns about the intrusive reporting requirements of the CTA given that those who serve on the boards of associations are volunteer homeowners. The extensive and invasive reporting requirements of the CTA are likely to deter participation on Community Association boards. This decision provides some hope to Community Associations that the law will ultimately not be enforceable and/or will be amended as to those required to report.

Unsurprisingly, the U.S. Department of Justice and FinCEN, the government agency tasked with the CTA’s implementation and enforcement, quickly filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. Whatever the appellate court decides, there is a decent chance that the CTA’s fate will wind up in the hands of the U.S. Supreme Court.

Until then, or there is an amendment to the CTA, Community Associations should presume they will need to report their beneficial ownership information to FinCEN by the dates outlined in our earlier blog post

For further information and assistance with your Community Association’s CTA compliance, please contact Nicole Miller in Ansell.Law’s Community Association practice group.