The House Financial Services Committee held a markup yesterday to consider twelve pieces of legislation. Notably absent was the Protecting Small Business Information Act (H.R. 4035), a bill to delay the Corporate Transparency Act’s January 1, 2024 effective date. The Main Street business community recently voiced its support for that legislation and had hoped to see it taken up by the panel.

The Committee’s failure to act raises two key points.

First, it is obvious House and Senate leaders are unaware of the political backlash coming their way if and when the CTA goes into full effect. By Treasury’s own numbers, more than 30 million entities will be required to report the personal information of their owners and senior management. Thirty million!

And while Treasury and the DOJ assure us that complying is going to be easy-peasy, their own work product suggests otherwise. The draft questionnaire is 8 pages and fifty questions long. The “Small Entity Compliance Guide” they issued yesterday is 56 pages long and not particularly clarifying. For example, here’s their counsel on the sticky question of what exactly “substantial control” means:

Reporting companies are required to identify all individuals who exercise substantial control over the company. There is no limit to the number of individuals who can be reported for exercising substantial control. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company. [emphasis added]

So you have “substantial control” and must report your private information to FinCEN if you have, well, substantial control. That explains it. Note to FinCEN: It’s poor form to define a term by using the term. Note to our legislators: Who do you think the small business community is going to blame when this train wreck arrives on their doorsteps January 1?

Second, the failure of Congress to fully appreciate the pollical implications of the CTA places even greater importance on the pending lawsuit filed by the National Small Business Association. This lawsuit argues the CTA clearly violates several fundamental constitutional principles, including the protection against unreasonable search and seizure.

Presiding Judge Liles Burke notified counsel this week that he would hear oral arguments in the case on Monday, October 30th, leaving the court just two months to digest the arguments and issue a decision if they are going to beat the January 1st implementation date.

That’s cutting it pretty close. When it comes to the CTA, once the proverbial genie is out of the bottle, it’s not going back in. If the federal government begins collecting sensitive personal information en masse starting in 2024, all the potential threats associated with the CTA and the long-lasting consequences that come with them will become a reality.

One last point. As we’ve written before (here, here, and here), the CTA will do little to achieve its stated purpose of cracking down on illicit financial transactions. The criminals are highly unlikely to self-report their crimes. Instead, the Act targets millions of law-abiding business owners to shoulder the compliance burden.

Hence the importance of the NSBA lawsuit. The plaintiff’s goal – and that of S-Corp and dozens of our allies in the business community – is to ensure these harmful reporting requirements never take effect, so we will be watching the October 30th arguments closely. In the meantime, we will continue to push Congress to act to protect Main Street from this ill-conceived law.