National Small Business United v. Yellen
721 F. Supp. 3d 1260
| N.D. Ala. | 2024Background
- Congress passed the Corporate Transparency Act (CTA) as part of the 2021 National Defense Authorization Act, requiring most state-incorporated entities to disclose personal information of beneficial owners to the Treasury’s Financial Crimes Enforcement Network (FinCEN).
- The CTA was aimed at preventing financial crimes such as money laundering and tax evasion facilitated through anonymous shell corporations.
- The National Small Business Association (NSBA) and one of its members, Isaac Winkles, challenged the CTA, arguing Congress exceeded its constitutional authority and violated multiple constitutional amendments.
- Plaintiffs moved for summary judgment, and the government sought dismissal, contending the CTA was a valid exercise of Congressional power under the Commerce, Taxing, and Necessary and Proper Clauses, and Congress’s foreign affairs/national security powers.
- The court considered only whether Congress had constitutional authority for the CTA, not whether it violated particular amendments, and resolved the case on cross-motions for summary judgment as no facts were in dispute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing | Plaintiffs are directly regulated and at risk of penalties; NSBA has associational standing via member Winkles | No concrete injury; regulatory requirements already exist | Plaintiffs have standing to challenge the CTA |
| Commerce Clause | The CTA does not regulate interstate or economic activity on its face; incorporation is not commercial activity | Entity formation and ownership info substantially affect interstate commerce; many regulated entities use commerce | The CTA exceeds Congress’s Commerce Clause power; too attenuated a link |
| Foreign Affairs/National Security Power | Regulating state law corporate formation is an internal not foreign affair; not necessary and proper for foreign affairs | CTA necessary to combat international financial crimes and comply with global standards | Power does not extend to purely internal, state-governed activities |
| Taxing Power/Necessary and Proper Clause | Disclosure requirements not closely linked to taxation; penalties not taxes | CTA is necessary to efficiently administer federal taxation; allowing tax authorities access is enough | Not justified by taxing power; connection too attenuated, not proper |
Key Cases Cited
- McCulloch v. Maryland, 17 U.S. 316 (1819) (federal powers are limited to those enumerated in the Constitution)
- United States v. Lopez, 514 U.S. 549 (1995) (limits Congress’s power under the Commerce Clause to economic activities)
- United States v. Morrison, 529 U.S. 598 (2000) (Commerce Clause does not permit broad regulation based on attenuated effects on interstate commerce)
- Gonzalez v. Raich, 545 U.S. 1 (2005) (Congress can regulate intrastate activity when it is an essential part of a broader regulatory scheme)
- Bond v. United States, 572 U.S. 844 (2014) (federal statutes should not intrude on areas of traditional state authority without clear Congressional intent)
- California Bankers Ass’n v. Shultz, 416 U.S. 21 (1974) (federal record-keeping requirements upheld where closely tied to interstate commerce)