Lots of action with the CTA in the weeks leading up to New Year’s. On Tuesday past, the House advanced the Protect Small Business and Prevent Illicit Financial Activity Act (H.R. 5119) sponsored by Representatives Joyce Beatty (D-OH) and Zach Nunn (R-IA), legislation that would extend key deadlines under the Corporate Transparency Act. The bill passed on the Suspension Calendar – a procedural move reserved for non-controversial measures – and sailed through with a vote of 420 to 1. More on this bill and its implications below.
While the House was adopting the Nunn bill, a bicameral group of more than 80 senators and representatives sent a letter to the Financial Crimes Enforcement Network calling for a one-year delay of all reporting requirements under the CTA. Led by Senators Mike Rounds and Rick Scott and Representatives Warren Davidson (R-OH) and Patrick McHenry (R-NC), the group writes:
Unfortunately, FinCEN is woefully behind in educating small business owners and stakeholders of their new obligations under the CTA that begin in just a few short weeks. In fact, a National Federation of Independent Business (NFIB) survey found that 90 percent of respondents were entirely unfamiliar with these reporting requirements. Even more concerning is that the CTA has civil and criminal penalties of up to $10,000 and two years of jail time for failure to comply. This lack of awareness and education is alarming and must be addressed before the law is implemented. Dozens of organizations, representing millions of small businesses operating in every state and community across the country, have already publicly expressed their strong support for delaying implementation of the beneficial ownership information (BOI) reporting requirements by one year.
Finally, just this morning FinCEN released the second of three rules necessary to implement the CTA, with this particular effort establishing the “parameters for access to and protection of beneficial ownership information.” In a sign of just how out-of-control the CTA has become under FinCEN’s stewardship, the rule is 247 pages and is being released less than two weeks prior to the reporting requirements taking effect.
As readers know, S-CORP and its allies have been fighting the ill-conceived CTA for years, including our support of the legal challenge led by the National Small Business Association (NSBA), so we’re encouraged by the overwhelming show of support for the Beatty/Nunn bill. It provides significant relief from the CTA, including:
- Entities formed in 2024 would have to file their initial reports no later than 90 days after their creation (Up from 30 days in the initial rule and consistent with the revised rule published by FinCEN);
- Entities formed after 2024 would also have 90 days to report (up from the current 30 days); and
- Entities needing to update their reports would also have 90 days (again, up from the ridiculous 30 days under the current rules).
Finally and most notably, the Beatty/Nunn bill appears to provide existing entities with a one-year delay, from the end of 2024 to the end of 2025, consistent with the Rounds/Scott/Davidson/McHenry letter. We say “appears” because the bill’s language could be clearer. It would make the following amendments to the CTA:
- Reporting of existing entities. In accordance with regulations prescribed by the Secretary of the Treasury (but which may not adjust the report submission deadline), any reporting company that has been formed or registered before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection, submit to FinCEN a report that contains the information described in paragraph (2).
Our reading of those changes is they would take away FinCEN’s ability to accelerate the reporting dates and restore congressional intent that existing reporting entities have a full two years to file their reports. That reading is consistent with the bill summary posted on Congress.gov:
The bill extends the deadline for companies to report ownership information to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Specifically, existing companies must file their initial ownership report within two years (current regulations require the report within one year).
It is also consistent with the understanding of the bill’s sponsors. As Congressman Nunn’s office described the bill in its news release:
Nunn’s bill, the Protect Small Businesses and Prevent Illicit Financial Activity Act, will fix this fatal flaw and make it easier for real American businesses to comply with the law by… [e]xtending the filing deadline for American businesses by 12 months while the Treasury Department fixes their flawed implementation of this new law to ensure small businesses are not overburdened with unclear and unnecessarily complicated new regulations.
Seems pretty clear — we will take the “W”.
Next steps for our CTA advocacy include pressing the Senate to adopt the bipartisan Beatty/Nunn bill as quickly as possible when they return in January. Existing reporting entities have until the end of the year to report, so it’s still timely for Congress to provide them with additional time to learn about the new reporting requirements and comply.
We also will be eagerly waiting for the Northern District of Alabama’s court decision in the NSBA challenge. That’s due any day now and we think the NSBA has an overwhelming case – the CTA represents the largest data grab (outside the Tax Code) in the history of the US and it’s being done as a purely law enforcement exercise. If the Fourth Amendment means anything, it means the CTA is outside the bounds of the law.
So good news all around for Main Street as we approach the New Year. There’s building recognition that the CTA is regulatory overreach and we now have at least two viable paths for relief. Happy holidays indeed.