Notable Developments

  1. Weak compliance numbers heighten concern
  2. Appeals court hears oral arguments
  3. Full court press in Ohio
  4. CTA is not a tax enforcement exercise

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Regulatory Update

New filing data from FinCEN is out and it paints a bleak picture when it comes to nationwide compliance rates. As the linked data shows, the vast majority of businesses required to file under the CTA have not done so – despite just three months to go before the year-end filing deadline – meaning millions of small business owners and their employees will become de facto felons come that start of 2025.

Also worth noting is that fact that Ohio, whose Senator Sherrod Brown continues to block our CTA delay bill, ranks near the bottom when it comes to compliance. It’s the inevitable consequence of a sweeping new reporting regime that no one has heard about. It also highlights the need to pause enforcement of the CTA for a year at the very least.

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Media Update (Part 1)

Couple big items to report on the press front. First, the Associated Builders and Contractors are out with a fantastic new ad in Ohio that urges legislative action to either repeal or delay the CTA:

Second, the Job Creators Network has this well-written piece in the Columbus Dispatch, which gets right to the point:

Ohio’s small businesses are being threatened by a new federal law set to take effect at the end of this year. Entrepreneurs who don’t fully comply will face steep fines and even jail time. As chairman of the Senate Banking Committee, Sen. Sherrod Brown (D-OH) should help delay – if not outright repeal – the misguided law.

Finally, former member of Congress and current CEO of the Ohio Chamber of Commerce Steve Stivers is out with an op-ed in the Herald-Star calling out the CTA. It leads with:

As a former member of Congress and president and CEO of the Ohio Chamber of Commerce, I’ve seen many bad bills enacted into law. The Corporate Transparency Act is one of the worst.

Why is it so bad?

The CTA is the first law I have ever seen that explicitly exempts big businesses while targeting Main Street job creators. It applies to entities with 20 or fewer employees or $5 million or less in revenues. Treasury estimates more than 32 million entities will be required to file this year, including hundreds of thousands located in Ohio.

Again, the low compliance numbers in Ohio – and every other state, for that matter – show just how few covered entities have even heard of the CTA, much less know how to navigate its complex requirements.

With penalties of up to $590 per day, or even felony charges and two years in jail, S-Corp and its allies plan to continue the pressure in Ohio and elsewhere until Main Street sees much-needed relief from this ill-conceived statute.

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Legal Update

The Eleventh Circuit Court of Appeals heard oral arguments last week in NSBA v Yellen, the ongoing suit that seeks to strike down the CTA on constitutional grounds. While the plaintiffs secured a favorable ruling from a lower court in March, FinCEN quickly appealed the decision to the 11th Circuit, which brings us to the current state of play.

For a recap of the proceedings be sure to check out this piece from Thompson Reuters. Though the DOJ attorneys landed some punches when it comes to that earlier decision, the 11th Circuit can still consider arguments that the CTA violates several constitutional protections as outlined in NSBA’s original suit. Long story short, anything can happen and we expect a ruling sometime in December, right before the year-end deadline.

You can listen to a recording of the full oral arguments here.

As a reminder, there are now eight pending cases in various courts across the country. S-Corp’s focus remains on the NSBA suit, but there’s still hope in other potentially friendly jurisdictions such as Texas. Here are the links:

  • Utah: Taylor v Yellen (7/29/2024)
  • Oregon: Firestone v Yellen (6/27/2024)
  • Massachusetts: BECMA et al v Yellen (5/29/2024)
  • Texas: NFIB et al v Yellen (5/28/2024)
  • Maine: William Boyle v. Yellen (3/15/2024)
  • Michigan: Small Business Association of Michigan et al v. Yellen (3/1/2024)
  • Ohio: Robert J. Gargasz Co., L.P.A. et al v. Yellen (12/29/2023)
  • Alabama (appealed): NSBA et al v. Yellen (11/15/2022)

 

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Media Update (Part 2)

Tax Notes recently covered the Oregon suit challenging the CTA – here’s a line from the article that caught our eye:

Designed in part to combat tax evasion, the CTA requires corporations, limited liability companies, and similar entities to disclose information about beneficial owners to Treasury’s Financial Crimes Enforcement Network, which can then release the information to government authorities and financial institutions.

No, not – the CTA was never designed to combat tax evasion.  In fact, until the bill reached conference, the IRS wasn’t listed as one of the many regulatory and law enforcement agencies granted access to the CTA database.  The inclusion of the IRS was a last second decision with the goal of making look like the CTA had something to do with tax enforcement.  It doesn’t.