The Main Street business community came out in force today calling on Congress to adopt a one-year delay of the Corporate Transparency Act as part of this year’s National Defense Authorization Act. The effort, led by the Main Street Employer’s coalition and backed by more than 135 of its trade association allies, is in support of a pair of NDAA amendments. As the letter explains:
Amendments sponsored by Senators Tim Scott (#2169) and James Lankford (#2831) would provide the business community and federal regulators additional time to educate millions of small business owners regarding the CTA’s new reporting requirements and the onerous penalties resulting if they fail to comply. They would also allow time for the on-going legal challenge to work its way through the courts while restoring Congress’s original intent to give covered entities a full two years to comply with the statute’s reporting requirements.
And here’s a bit more on each of those important points:
Although filing under the CTA began at the start of this year, only a few million businesses have registered while an estimated 28 million covered small businesses have yet to file. This compliance rate of less than 10 percent is a direct result of the general lack of awareness among business owners regarding the new rules.
…Recent court decisions have added to the confusion. In March, the United States District Court for the Northern District of Alabama found the CTA exceeded the Constitution’s enumerated powers and is therefore unconstitutional. That case was appealed and will be heard by an appellate court later this year. In the meantime, however, FinCEN continues to enforce the CTA against all small businesses and other entities not named in the lawsuit.
…Finally, in enacting the CTA lawmakers explicitly called for a reporting deadline of “not later than 2 years after the effective date of the regulations” for existing entities. This timeframe was designed to give affected entities sufficient time to learn of, understand and comply with the new reporting regime, while minimizing the burdens on reporting companies. In its rulemaking, however, FinCEN shortened this deadline and gave existing entities just one year to comply.
The CTA originally was enacted as part of the FY2021 NDAA, so it makes sense to initiate a delay via this year’s defense spending bill. It’s also worth noting that while the CTA was quietly snuck into the NDAA – after having received no public debate or hearings – S-Corp and its allies are being open and transparent about their efforts.
The one-year delay called for by Senators Scott and Lankford is what the business community needs right now. It would give them time to learn about the CTA, time for the courts to issue a ruling, and time for FinCEN to finish the job of educating the public about the new law.