Big Beautiful Bill(s)
Only a couple of days into the new Congress and they’re ready to throw hands!
The Chairman’s frustration is justified. The obsession with process over policy is getting old. As Senator Bob Dole used to say, you should talk about your accomplishments, policies, and facts first. If you don’t have any of those, then fall back on process. “You can always talk about process.” Focusing on process exclusively shifts attention away from the underlying policies and their real-world consequences for Main Street and elsewhere.
It’s also a waste of time. At the end of the day, the reconciliation bill(s) will include whatever magic mixture of policies gets to a majority. If that’s one big omnibus, great. If it’s several smaller bills, that’s fine too. Donald Trump appears to understand this. With just a 2-vote margin in the House, it’s also reasonable to expect the path to finding that magic mixture will be messy, so buckle up.
For Main Street, the key is to ignore all the process talk and keep focused on the goal – building maximum support for 199A permanence so when Congress does take up the tax bill, we’re ready.
Tax Hearing & Timing
Speaking of buckling up, the Ways and Means Committee is hitting the ground running. It will hold a hearing on the expiring tax provisions next Tuesday, January 14th. Word is at least two of the witnesses will focus on 199A and its importance to the economy and jobs. Have we mentioned 63 percent of workers are employed by pass-through businesses? (Download the S-Corp Jobs App here!)
In terms of overall timing, House leadership has been signaling for months they wanted to move quickly to address the fiscal cliff. Just this week, Speaker Johnson said he wants to adopt a budget in March to tee up House consideration of a reconciliation bill in April. Worst case scenario, he said, is a bill on the President’s desk before Memorial Day. Is that possible?
Yes, it is. President Bush announced his Jobs and Growth tax package on January 7, 2003 and signed it into law on May 28th. Majorities were tight back then too, with both the budget and resulting reconciliation bill getting the bare minimum 50 votes in the Senate, with the Vice President breaking the ties.
The difference this time around is the nature of the challenge. The 2003 bill was an effort to boost the economy by accelerating the tax benefits of the 2001 tax bill. Today’s challenge is more serious — how to avoid a massive tax hike on Main Street businesses that puts millions of jobs at risk.
The fact that we’re talking about this challenge Day 1 is helpful and a strong signal that the Congress is serious about avoiding those tax hikes. Much more to come.
CTA Update | January 7, 2025
Notable Developments
- Government appeals to SCOTUS
- Lawmakers still pushing for CTA repeal
- Yet another Treasury hack
* * *
Legal Update
Immediately following the reinstatement of the nationwide injunction against the CTA by the Fifth Circuit, the government asked the U.S. Supreme Court to overturn that ruling and restore the filing deadline while the broader case remains pending. As SCOTUS Blog notes, the government’s argument focuses in part on whether federal courts have the authority to issue nationwide injunctions in the first place:
More broadly, [Solicitor General] Prelogar suggested that the justices could weigh in on the propriety of so-called “universal injunctions” – orders barring the government from enforcing the law anywhere in the country. Some of the court’s conservative justices – Clarence Thomas, Neil Gorsuch, and Brett Kavanaugh – have indicated in the past that the Supreme Court should address whether such injunctions are proper.
We’ll be keeping a close eye on those developments but as we noted previously, absent SCOTUS intervention, the nationwide injunction will remain in place at least through March 25th when the Fifth Circuit will hear oral arguments.
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Hill Update
Last week Representatives Harriet Hageman (R-WY) and Warren Davidson (R-OH) penned an excellent op-ed in the Wall Street Journal that calls on lawmakers to repeal the CTA altogether in the new Congress:
Republicans have introduced H.R. 8147, the Repealing Big Brother Overreach Act, which would take this unconstitutional law off the books and protect the privacy and freedom of small businesses and their owners.
The court that issued the injunction against the Corporate Transparency Act called it a “quasi-Orwellian” law that would “rubber-stamp a new form of federal power” with unprecedented mandates, undermine the U.S. system of federalism and set a dangerous precedent. A panel of the Fifth U.S. Circuit Court of appeals stayed the injunction, another panel reinstated it, and the appellate court will hear oral arguments in March.
Congress shouldn’t wait for the courts to rescue it from its own bad ideas. Our policies should unleash the entrepreneurs who fuel innovation, create jobs and keep the American dream alive. We shouldn’t shackle them, regulate them to death and doom them to failure.
Senator Mike Lee (R-UT) also closed out 2024 with a plug for his repeal legislation on X.com:
With the 2024 filing deadline now behind us, it’s encouraging to see lawmakers keeping up the pressure and ensuring the CTA remains front and center. We look forward to seeing both repeal bills reintroduced in the new Congress and working with these Members to getting them enacted.
* * *
Treasury Database Hacked
One of the less-discussed shortcomings of the CTA is that it mandates the collection of tens of millions of pieces of sensitive personal information, and warehouses it all an agency with a spotty record of keeping that data secure. Last week we got a timely reminder of those vulnerabilities, as reported by the Washington Post:
Chinese government hackers breached a highly sensitive office in the Treasury Department that administers economic sanctions against countries and groups of individuals — one of the most potent tools possessed by the United States to achieve national security aims, according to U.S. officials.
…Even unclassified documents can be very useful to a competitor like China, current and former officials said. A breach of OFAC, in particular, could lead to the disclosure of sensitive information about government sanctions deliberations. Before designating a target, OFAC compiles an “administrative record” that purports to show how the evidence collected meets the statutory or regulatory criteria for designation.
The records can include everything from open-source materials to “law enforcement sensitive” information and classified material provided by U.S. or foreign law enforcement, according to four former government officials.
When it comes to securing information collected under the CTA, FinCEN’s stance has essentially been “this time will be different.” Given the relative frequency of these breaches, that’s hard to believe.
CTA Injunction Reinstated!
The Corporate Transparency Act saga took a welcome turn yesterday after a Fifth Circuit Court panel reinstated the nationwide injunction against the statute.
As a result of the order, Main Street businesses are not required to comply with the Corporate Transparency Act’s reporting requirements until the Fifth Circuit is able to more fully consider the injunction and the underlying merits of the legal challenge. The key paragraphs from that ruling are below:
On December 3, 2024, the district court entered an order enjoining enforcement of the Corporate Transparency Act and its corresponding Reporting Rule. The Government requested a stay of the preliminary injunction, which the district court denied. The Government appealed, and on December 23, 2024, a motions panel of this court granted the government’s emergency motion for a stay pending appeal. The order also expedited the appeal to the next available oral argument panel.
The merits panel now has the appeal, which remains expedited, and a briefing schedule will issue forthwith. However, in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED.
The panel also announced today that it would hear arguments on March 25 on whether to keep the injunction in place while the broader case is heard by the full court. So absent the federal government appealing yesterday’s decision to the Supreme Court – and SCOTUS intervening in the case – the injunction will stay in place through at least the end of March 2025, at the earliest. In other words, yesterday’s order means covered entities do not need to file their Beneficial Ownership Information reports prior to that proceeding.
Meanwhile, we are still waiting on the Eleventh Circuit ruling on the case from Alabama and expecting a decision soon from the Western District of Michigan where the judge has already signaled his sympathy for the plaintiffs.
And finally, the new administration takes office on January 20th and S-Corp is working to get an administrative delay implemented through the end of 2025. Key members of the Trump team have already weighed in against the CTA (here, here and here). We just need to turn those concerns into action.
The unpredictability we’re seeing in the courts is a central part of our argument for an administrative delay. Yesterday’s ruling is a welcome development that should give us the time necessary to get that done.
CTA Filing Deadline Extended to January 13th
It’s far short of the one-year delay S-Corp was seeking, but businesses covered by the Corporate Transparency Act received a small stocking stuffer yesterday, courtesy of the Treasury Department.
Following the unfavorable ruling by the Fifth Circuit which reinstated the Corporate Transparency Act, the Financial Crimes Enforcement Network (FinCEN) has extended the general CTA filing deadline two weeks, until January 13th. According to the notice posted on the FinCEN website:
Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
You can read the entire post here.
Meanwhile, the legal fight is far from over. The plaintiffs in the Fifth Circuit case filed an emergency petition for an en banc hearing by January 6th, or one week before the new filing deadline. The petition was filed last evening and makes the case for why the earlier three-judge panel errored both with necessity of the injunction and on the merits of the case:
The panel had nothing to say about the practical consequences of suddenly reinstating the compliance deadline with just days left to comply, disregarding an obvious consideration that was elaborated upon in amicus briefs by half the states and dozens of major industry groups. Tens of millions of business entities are subject to the CTA’s reporting mandate, and the injunction and its effect have been widely publicized by the media and FinCEN itself. The panel’s decision to bring the CTA back into force with just a few business days remaining in the middle of the holiday season will harm many, as those responsible for reporting scramble to understand and fulfill obligations that the government informed them only weeks ago had been postponed.
And:
At bottom, the panel erroneously accepted the government’s vague assertion that Congress may exercise plenary authority, irrespective of the limits of its enumerated powers, in any field it has legitimately entered. If that were so, then Congress’s longstanding regulation in the healthcare field would have supported the ACA’s insurance mandate. Of course, it did not.
The S Corporation Association is named as an Amici in the petition, as are numerous other trade groups and twenty five states.
We also are waiting for the 11th Circuit to rule on the government’s appeal of the Northern District of Alabama’s decision last March that the CTA is unconstitutional. Oral arguments in that appeal took place in September, so a decision could come at any time.
And finally, we noted in last week’s Wire that a district court in Michigan had signaled serious concerns regarding the scope of the CTA and its incompatibility with the Constitution, suggesting we may soon have a third Federal court ruling against this onerous law.
So a modicum of good news just before Christmas. Existing entities now have an extra two weeks to file their initial beneficial ownership reports, and the legal process may still deliver more meaningful relief. Credit to NFIB for keeping the fight going and to FinCEN for recognizing how disruptive this process has been. More to come.
Government Wins, Private Businesses Lose
An appellate court today ruled in favor of the federal government in reversing a nationwide injunction against the Corporate Transparency Act. The decision means that the CTA’s reporting requirements are now back in full effect, giving the approximately 20 million entities who have not yet submitted their filings just a few days to do so.
The injunction that’s currently in place was ordered by a Texas court which found that the CTA is “likely unconstitutional” and that Congress went beyond its authority in enacting the statute. The government quickly requested that the injunction be stayed pending a final ruling.
In response, S-Corp, in addition to more than a dozen organizations and 25 states, filed amicus briefs urging the Fifth Circuit to keep the injunction in place. Our argument was that doing so would give millions of businesses more time to learn about their new filing obligations while giving the courts time to make a final ruling. As a practical matter, lifting the injunction this close to the filing deadline also presents a logistical nightmare for countless businesses.
That nightmare is about to become a reality. At of the start of December, federal regulators estimated that just a third of the entities required to file under the CTA had done so. Given the massive education gap we know exists, there’s little doubt that most of the remaining 20 million entities will not be in a position to comply with the filing requirements before the end of the year.
This fight is not over. Next step on the advocacy side will be to work with the incoming Trump Administration to delay the filing deadline administratively. This won’t help existing companies which already reported their Beneficial Ownership Information, but it will help new incorporations and those businesses that failed to file.
Over at the courts, we expect the NFIB to appeal the Fifth Circuit Court decision. Word is an expedited appeal hearing on the stay is already in the works, but that hearing is unlikely to take place before the end of the year.
Meanwhile on the merits, today’s court order argues that the government is likely to succeed in its defense of the CTA, but that decision was written by two Democrat judges, so it may not reflect the views of the full Fifth Circuit or the Supreme Court.
Finally, we have yet to hear from the Eleventh Circuit, which is considering the government’s appeal of the North District of Alabama District Court decision that the CTA is unconstitutional. That decision could come down any day now.
So bad news right before Christmas, but lots more to come on the CTA. Looking forward to better results next year.