Notable Developments
- Senator Lankford pushes delay via NDAA
- CTA enforcement under Trump administration?
- Oregon plaintiffs file suit
- Op-eds highlight CTA’s fatal flaws
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Legislative Update
Senator James Lankford (R-OK), a cosponsor of the Senate’s version of the CTA delay bill that overwhelmingly passed the House last year, is doubling down on his efforts to advance relief for the Main Street business community. As he posted on X.com on Monday:
The Beneficial Ownership Information reporting requirements (aka a new registry) for small business owners are unclear and overly broad. They are due on January 1, 2025, but I am pushing for a 1-year delay.
As we’ve written previously, the CTA originally was enacted as part of the FY2021 NDAA, so it makes sense to initiate a delay via this year’s version. It’s also worth noting that while the CTA was snuck into the NDAA at the time, S-Corp and its allies are being open and transparent about their efforts now.
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Regulatory Update
Per the latest post from our friend and ally Carol Roth, there’s still hope that the incoming Trump administration might quash CTA enforcement:
The belief from my contacts is that even if none of that happens prior to the deadline, Trump won’t enforce penalties, especially with the large number of non-complying entities expected. However, as that is not guaranteed, you have to decide on which is a bigger risk—risking the government coming after you for the non-compliance fines or handing your information over to them.
My guess is if something does happen before year end, it will be at the 11th hour, not giving us a lot of time to make a decision.
As we’ve long maintained, the ultimate goal here is to quash the CTA’s reporting requirements before year end and prevent the federal government from establishing its database. Would a public announcement from Trump officials that they won’t enforce the CTA be enough to offer de facto amnesty to tens of millions of affected entities? Many of the legal eagles we’ve spoken to seem to think so, but it remains an open question.
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Legal Update
On November 22nd a group of small business owners appealed an Oregon court’s ruling that struck down their CTA challenge. The suit was initially filed in June but was rebuffed in September. The appeal is backed by the Center for Individual Rights, whose press release reads:
Although it was enacted to combat financial crime, the law exempts large corporate entities and financial firms, leaving mostly small businesses and some non-profit organizations to comply. Failure to comply with CTA reporting can result in uncapped and unlimited daily civil penalties of up to $500 per day, and criminal sanctions of up to $10,000 in fines and up to two years’ imprisonment, or both.
“I can’t understand why the CTA exempts large corporations but threatens small business owners with criminal penalties unless we give up sensitive information to the federal government without any lawful purpose,” said Lisa Ledson, one of the plaintiffs and owner of an Oregon-based health care firm. Ledson stated that under Oregon state rules related to the nursing profession, she would have to self-report any sanctions made against her by FinCEN to the nursing board, which would put her at risk of losing her nursing license.”
As a reminder, there are now at least ten cases in various courts across the country challenging the validity of the CTA. Here are the links:
- Alabama (appealed): NSBA et al v. Yellen (11/15/2022)
- Ohio: Robert J. Gargasz Co., L.P.A. et al v. Yellen (12/29/2023)
- Michigan: Small Business Association of Michigan et al v. Yellen (3/1/2024)
- Maine: William Boyle v. Yellen (3/15/2024)
- Texas: NFIB et al v Yellen (5/28/2024)
- Massachusetts: BECMA et al v Yellen (5/29/2024)
- Oregon (appealed): Firestone v Yellen (6/27/2024)
- Utah: Taylor v Yellen (7/29/2024)
- Virginia: Community Associations Institute v. Janet Yellen (9/10/2024)
- Texas: Association of American Physicians & Surgeons et al v Yellen (10/28/2024)
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Compliance Update
Here’s Carol Roth again with an excellent piece that spells out the regulatory nightmare that tens of millions of law-abiding small business owners are headed towards, along with a call to action:
Despite at least 10 pending lawsuits challenging the rule’s constitutionality, including one where a federal district court declared it unconstitutional, Congress has not taken definitive action. Multiple delay bills have been introduced in both the House and Senate, yet none have moved forward. A recent report estimated compliance rates at just 10%, meaning millions of small businesses could face penalties under an unconstitutional rule.
Small-business owners are not financial criminals. They are the backbone of the American economy and deserve better treatment. This rule unfairly targets them, and Congress or President-elect Trump must take immediate action to protect these businesses.
And a recent op-ed in Barrons reinforces Roth’s point regarding compliance:
But the low compliance rate so late in the year reflects problems with the general way the CTA was written, says Alan Granwell, an attorney at Holland & Knight. While many owners may not be aware of the new rules, even those who are and have best intentions to file are stumped by myriad questions, he says.
“We’re getting calls left, right and sideways about this stuff,” Granwell says. “You have different questions arise depending on whether you’re in private equity, venture, construction, real estate—each has its own issues.”
Some business owners may be holding off on filing, hoping that the CTA will be overturned in the courts or that Republicans, who typically favor easing regulations and less oversight on businesses, will cancel the CTA requirements next year now that they have a majority in the Senate and the House.
… “This just came up—one owner is in an elderly home and doesn’t have the required documents,” Granwell says. It’s unlikely identification can be applied for and granted by the year-end deadline.
Finally, small business owner Gary James, president of Dynalab in Reynoldsburg, Ohio, has a great piece in the Columbus Dispatch:
Reforming the regulatory state is also shaping up to be a priority of the incoming White House. Given that the onslaught of new government regulations implemented under the Biden administration has cost businesses upwards of $1.4 trillion, the pruning is sorely needed. The Corporate Transparency Act is a good example of such draconian government overreach and needs to be rescinded.
Large corporations have the luxury of propping up legal departments to navigate regulatory mazes and paperwork. Small businesses, on the other hand, do not. In fact, the average per employee cost of regulatory compliance for manufacturing businesses with fewer than 50 employees is double that of large firms in the same sector.
Once again, the CTA is going to turn countless small business owners into felons come the end of the year, many of whom have no idea why. It’s time to enact relief now, and better yet put this ill-advised information dragnet to bed once and for all.