S-Corp Files CTA Amicus Brief
The S Corporation Association filed an Amicus brief yesterday in support of the nationwide injunction on enforcement of the Corporate Transparency Act.
With the filing deadline just days away, and millions of covered businesses not having yet filed, the importance of keeping this injunction in place cannot be overstated – a concern that is compounded by the fact that the 1-year delay provision moving through Congress is now stalled as lawmakers fight over the contents of the year-end spending bill.
Yesterday’s brief, filed on behalf of the S Corporation Association and the Private Investor Coalition, makes the case for keeping the injunction in place, giving millions of businesses more time to learn about this new filing requirement, and giving the courts time to rule that the CTA is unconstitutional.
Why all the fuss? The CTA is the most aggressive, unrestrained data grab in American history. As the brief notes:
No other federal information-collection statute presents comparable privacy risks. Other kinds of personal information given to the federal government are protected by the Privacy Act of 1974, which generally precludes the Government from using information collected for one reason for incompatible purposes. Personal information given to federally regulated financial institutions is likewise protected under the Right to Financial Privacy Act of 1978, which generally requires the Government to obtain a warrant, subpoena, or other form of process before it can access a citizen’s personal information without their consent. Tax information collected by the Government is protected under the Internal Revenue Code, which generally requires a court order before the IRS may share information with non-tax enforcement agencies.
The CTA provides no similar panoply of protections. If the Government obtains a stay or a narrowing of the District Court’s injunction, the Amici’s members and millions of other American citizens and businesses will be forced to hand over private information for a criminal-investigation database that can be accessed by any federal agency and many foreign, state, and local governments and their agencies. The privacy bell will be incapable of being un-rung.
The recent Texas ruling joined the Northern District of Alabama decision from last March in casting doubt that the CTA falls within the government’s constitutional authority. We may soon have a third court weigh in. As Law360 notes:
A federal judge in Michigan said new disclosure requirements for small businesses seem burdensome and intrusive during a Monday hearing focused on the privacy implications of the currently blocked anti-money laundering law….
During a hearing in a separate legal challenge to the CTA, U.S. District Judge Robert J. Jonker said he was troubled by both the “massive amount” of information the government was seeking from small businesses and that the government was requiring the disclosure of nonpublic information to assist in criminal investigations without the need for a warrant.
“It invites the conclusion that the main purpose of the whole act is to get around the Fourth Amendment,” Judge Jonker said.
So the case against the CTA is gathering momentum. S-Corp is confident the constitutional challenges raised against the CTA will ultimately prevail, but that will take time and the CTA’s filing deadline is in two short weeks.
With the legislated delay in jeopardy and the 11th Circuit appeal still pending, the Texas injunction may be the last opportunity to protect the privacy of millions of business owners. As the judge in Michigan notes, once that data is collected, there’s no going back.
Main Street Still Fighting for CTA Delay
Today more than 100 trade associations joined with S-Corp in asking lawmakers to pass a Continuing Resolution bill that includes language delaying the Corporate Transparency Act’s reporting deadline. The effort was mounted following reports that some House members were seeking to strip the provision from the broader package, a move that would needlessly expose millions of law-abiding business owners and employees to stiff fines and penalties.
As the letter makes clear, a one-year delay is critical and would provide much needed relief and certainty to businesses, give federal regulators more time to execute affected entities, and allow various legal challenges to make their way through the courts:
FinCEN estimates that more than 32 million such entities will be affected by the new law just this year, with an additional 6 million each subsequent year as new businesses are formed. Yet as of December 1, 2024 – just one month before a year-end deadline – FinCEN has received less than 30 percent of the required filings, highlighting the stark education gap when it comes to the compliance obligations mandated by the CTA.
Adding to the confusion are the myriad legal challenges that have been filed throughout the country, and which stand at various stages of the legal process. Notably, a nationwide injunction against the CTA was recently appealed and will be heard by the Fifth Circuit, while an Alabama court ruling that found the CTA unconstitutional is pending appeal in the Eleventh Circuit. Small businesses therefore find themselves in a precarious position: they are currently under no obligation to file, but a single ruling could reverse that dynamic, leaving them with just days to comply with this burdensome and costly statute.
So where do things currently stand? We’ve heard from numerous offices that – thanks at least in part to outreach from our trade association allies and our collective members – the provision may be safe.
However, the broader bill is now in danger as more and more Republicans come out against it as the day progresses. As that opposition mounts, we once again urge those to reach out to their elected officials and ask them to include delay language in the final CR.
CTA Delay in Funding Bill
Big news for S corporations and other businesses covered by the Corporate Transparency Act – draft text of the negotiated legislation, which was released earlier today, includes a one-year delay of the Corporate Transparency Act’s (CTA) reporting requirements.
That means many businesses covered by the CTA – specifically those that existed prior to 2024 – will have an extra year to file their Beneficial Ownership Information reports. It’s a commonsense approach that S-Corp and its allies have pushed for over the last several years and, if enacted this week, will give 30 million businesses some much needed certainty heading into the New Year.
As we wrote earlier this week, a legislated delay is important even in the wake of a favorable ruling out of Texas imposing a nationwide injunction on CTA filing. That injunction is being appealed, and the Fifth Circuit has approved a dramatically accelerated timeline and appears to be gearing up to issue a verdict before year end. S-Corp is joining the Private Investor Coalition to submit an Amicus brief this week.
So the belt-and-suspenders approach is needed here.
The legislated delay is by no means a done deal – Speaker Mike Johnson faces an uphill battle getting the CR bill across the finish line, so the text released today could change as concessions are made to secure votes. Meanwhile, the Fifth Circuit could rule in the government’s favor and stay the nationwide injunction, forcing millions of covered businesses to file in the few remaining days of the year. As the WSJ noted this morning:
The Fifth Circuit could throw out the CTA on grounds Judge Mazzant lays out, but other courts are split. A federal judge in Alabama has ruled the CTA unconstitutional, while federal judges in Oregon and Virginia made preliminary rulings going the other way. The cases could go to the Supreme Court.
But Congress needn’t wait for courts to remove this looming burden from millions of small businesses. This is the kind of unnecessary regulation that Republicans campaigned to stop. A one-year delay is already under consideration as an amendment to the year-end spending bill being debated in Congress. Congress can adopt this amendment, deliver relief to small business, and give the courts the time they need to resolve this mess.
Our view is the injunction will remain in place and Congress will succeed in passing its spending bill, including the 1-year CTA delay, but we will just have to wait and see. The good news is there’s still time in the calendar for covered businesses to pause their filing and see where Congress and Courts end up. If all goes well, it’s going to be a very happy New Year indeed.
CTA Update | December 16, 2024
Notable Developments
- WSJ Highlights Legislative Effort
- Carol Roth on the Need for Certainty
- Is FinCEN Complying with the Injunction?
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Legislative Update
Draft text of a Continuing Resolution – which Congress has to pass before Saturday to avoid a government shutdown – is expected to be released today, and many are watching closely to see if it includes a one-year pause of the CTA.
With the filing requirements currently on hold thanks to a Texas court ruling, why does Main Street still need a delay? Here are Caleb Kruckenberg and Andrew Grossman – who have both helped lead the legal battle against the CTA – with an op-ed in yesterday’s Wall Street Journal:
The burdens are staggering, even by the government’s accounting. FinCEN projects that more than 32 million entities would have to file reports in the first year, with an additional five million in each subsequent year. Compliance costs in the first year alone will be about $22.7 billion, FinCEN estimates. The utter chaos in the run-up to the Jan. 1 filing deadline suggests the real costs may be far higher, as every contractor, gasoline station and homeowners’ association discovered it needed to hire professionals to identify its “beneficial owners” and get the details right. As FinCEN helpfully notes, violations of the reporting requirement may incur civil penalties of up to $591 a day and even criminal penalties.
…Yet the Jan. 1 filing deadline remains a threat. The government has asked the Fifth Circuit Court of Appeals to put the injunction on hold. The government doesn’t dispute that reinstating the filing deadline for this unconstitutional mandate on such short notice would lead to chaos.
The bottom line is that a delay is the only logical conclusion here but it is unclear if the amendment has been included in the CR. As has been the case since Day 1, constituent voices matter most on this issue, so if you’re personally affected by the CTA, we hope you will contact your representatives and support a one-year delay.
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Media Update
Our friend, small business advocate, and ally in the CTA fight Carol Roth has yet another reminder to Congress on the importance of a CTA delay, even in the wake of the favorable court ruling out of Texas. Here’s her op-ed that ran in Fox News the other day:
While this injunction offers small business owners a temporary reprieve against the “beneficial ownership information” (BOI) rule, they need more certainty.
…Congress needs to act to give small businesses clarity. In addition to delay bills in the House and the Senate, a repeal bill “Repealing Big Brother Overreach Act” introduced in the House by Rep. Warren Davidson, R-Ohio, and in the Senate by Sen. Tommy Tuberville, R-Ala., should be voted on by Congress.
Also, the Trump administration has an opportunity to come out and say that it won’t enforce any fines either – giving more clarity to small businesses headed into the end of the year – and, even better, that Trump’s Treasury will jettison this effort entirely.
We couldn’t agree more and hope Congress hears this message loud and clear.
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Legal Update
Attorney Keith Bishop posted an interesting take regarding the Texas court decision to halt the CTA and FinCEN’s decision to continue collecting those filings:
Earlier this month, U.S. District Court Judge Amos L. Mazzant preliminarily enjoined the Corporate Transparency Act and its implementing regulations. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 4953814 (Dec. 03, 2024). Two days later the Department of Justice filed an appeal with the Fifth Circuit Court of Appeals on behalf of the Department of Treasury. At about the same time, the FinCEN (a bureau within the Department of Treasury) issued an alert which included the following (emphasis added):
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
I find it interesting that the FinCEN has decided that it can continue to collect filings given Judge Mazzant’s conclusion that the “CTA is likely unconstitutional as outside of Congress’s power”. If Congress had no power to enact the CTA, what power does the FinCEN have to implement it, even on a voluntary basis. What is the authority of the FinCEN to spend money on an unconstitutional program? In the corporate context, this would be characterized as ultra vires on the part of the FinCEN.
As Bishop concludes, if the CTA itself is enjoined, doesn’t that mean that it cannot be applied even on a voluntary basis?
CTA Update | December 12, 2024
Notable Developments
- Government digs in
- Vivek blasts CTA
- Congress working on delay
- CNBC highlights CTA “awareness” gap
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Legal Update
Just two days after the U.S. District Court for the Eastern District of Texas issued a nationwide injunction of the CTA, the federal government appealed the decision. The case now heads to the Fifth Circuit Court of Appeals, though no word yet on when we might see a ruling.
As noted earlier, the ongoing legal battle – which will likely bleed into 2025 – makes it even more critical that an official delay be enacted. Without one, we could see an outcome where the injunction is halted next year, meaning the tens of millions of entities that did not file due to the injunction would then be out of compliance. That’s the last thing Main Street businesses want looming over their head.
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Regulatory Update
Vivek Ramaswamy, who has been tapped by President-elect Donald Trump to help lead a new Department of Government Efficiency (DOGE), took to X.com yesterday to call out the CTA’s reporting requirements:
Two-point-four million views! Slightly more than the S-Corp feed gets. Vivek is the latest incoming Trump official highlight this regulatory trainwreck, further suggesting the Trump administration will help us to repeal, or at the very least modify, the CTA once in office.
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Legislative Update
Fresh on the heels of last week’s favorable court ruling, several House members signed a letter once again urging FinCEN to implement a delay, as well as clear guidance to affected entities. It reads, in part:
While Judge Mazzant’s ruling provides temporary relief by staying the compliance deadline, it has also introduced significant ambiguity for businesses attempting to comply with the CTA’s requirements. The court’s finding that the CTA and its reporting rule are likely unconstitutional underscores the need for FinCEN to reconsider its enforcement strategy during this period of legal uncertainty. As stewards of public trust, it is imperative that FinCEN provide clear, actionable guidance to ensure small businesses are not unduly burdened or penalized.
Specifically, we urge FinCEN to immediately issue interpretative guidance or a formal public statement clarifying how this injunction affects compliance obligations. Further, we strongly encourage FinCEN to formally delay enforcement of the BOI reporting requirements until the legal challenges to the CTA are resolved and there is greater clarity on the obligations of reporting companies. It is unreasonable to expect small businesses to navigate this uncertainty without fear of penalties for noncompliance.
Even with the nationwide injunction currently in place, it’s critical that a formal delay be implemented through legislative or regulatory action. There are multiple scenarios under which the Texas court ruling could be overturned and Main Street businesses need some semblance of certainty going into next year.
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Media Update
A recent CNBC piece looks at the latest BOI filing data, which shows the massive number of businesses that have yet to submit their required reports:
The federal government had received about 9.5 million filings as of Dec. 1, according to statistics FinCEN provided to the office of Rep. French Hill, R-Ark., who has called for the repeal of the Corporate Transparency Act. Hill’s office provided the data to CNBC. That figure is about 30% of the estimated total.
… The scope of national compliance is “bleak,” the S-Corporation Association of America, a business trade group, said in early October. The “vast majority” of businesses hadn’t yet filed a report, “meaning millions of small business owners and their employees will become de facto felons come that start of 2025,” it said.
Also notable is a quote from FinCEN, which seems to counter the longstanding assertion that only “willful” violations will be prosecuted:
“FinCEN understands this is a new requirement,” FinCEN said in an FAQ. “If you correct a mistake or omission within 90 days of the deadline for the original report, you may avoid being penalized. However, you could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.”
So how is FinCEN going to distinguish between inadvertent and willful violations of millions of non-compliant business owners? Like many aspects of the CTA, it’s hard to say.