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Government Wins, Private Businesses Lose
An appellate court today ruled in favor of the federal government in reversing a nationwide injunction against the Corporate Transparency Act. The decision means that the CTA’s reporting requirements are now back in full effect, giving the approximately 20 million entities who have not yet submitted their filings just a few days to do so.
The injunction that’s currently in place was ordered by a Texas court which found that the CTA is “likely unconstitutional” and that Congress went beyond its authority in enacting the statute. The government quickly requested that the injunction be stayed pending a final ruling.
In response, S-Corp, in addition to more than a dozen organizations and 25 states, filed amicus briefs urging the Fifth Circuit to keep the injunction in place. Our argument was that doing so would give millions of businesses more time to learn about their new filing obligations while giving the courts time to make a final ruling. As a practical matter, lifting the injunction this close to the filing deadline also presents a logistical nightmare for countless businesses.
That nightmare is about to become a reality. At of the start of December, federal regulators estimated that just a third of the entities required to file under the CTA had done so. Given the massive education gap we know exists, there’s little doubt that most of the remaining 20 million entities will not be in a position to comply with the filing requirements before the end of the year.
This fight is not over. Next step on the advocacy side will be to work with the incoming Trump Administration to delay the filing deadline administratively. This won’t help existing companies which already reported their Beneficial Ownership Information, but it will help new incorporations and those businesses that failed to file.
Over at the courts, we expect the NFIB to appeal the Fifth Circuit Court decision. Word is an expedited appeal hearing on the stay is already in the works, but that hearing is unlikely to take place before the end of the year.
Meanwhile on the merits, today’s court order argues that the government is likely to succeed in its defense of the CTA, but that decision was written by two Democrat judges, so it may not reflect the views of the full Fifth Circuit or the Supreme Court.
Finally, we have yet to hear from the Eleventh Circuit, which is considering the government’s appeal of the North District of Alabama District Court decision that the CTA is unconstitutional. That decision could come down any day now.
So bad news right before Christmas, but lots more to come on the CTA. Looking forward to better results next year.
S-Corp Files CTA Amicus Brief
The S Corporation Association filed an Amicus brief yesterday in support of the nationwide injunction on enforcement of the Corporate Transparency Act.
With the filing deadline just days away, and millions of covered businesses not having yet filed, the importance of keeping this injunction in place cannot be overstated – a concern that is compounded by the fact that the 1-year delay provision moving through Congress is now stalled as lawmakers fight over the contents of the year-end spending bill.
Yesterday’s brief, filed on behalf of the S Corporation Association and the Private Investor Coalition, makes the case for keeping the injunction in place, giving millions of businesses more time to learn about this new filing requirement, and giving the courts time to rule that the CTA is unconstitutional.
Why all the fuss? The CTA is the most aggressive, unrestrained data grab in American history. As the brief notes:
No other federal information-collection statute presents comparable privacy risks. Other kinds of personal information given to the federal government are protected by the Privacy Act of 1974, which generally precludes the Government from using information collected for one reason for incompatible purposes. Personal information given to federally regulated financial institutions is likewise protected under the Right to Financial Privacy Act of 1978, which generally requires the Government to obtain a warrant, subpoena, or other form of process before it can access a citizen’s personal information without their consent. Tax information collected by the Government is protected under the Internal Revenue Code, which generally requires a court order before the IRS may share information with non-tax enforcement agencies.
The CTA provides no similar panoply of protections. If the Government obtains a stay or a narrowing of the District Court’s injunction, the Amici’s members and millions of other American citizens and businesses will be forced to hand over private information for a criminal-investigation database that can be accessed by any federal agency and many foreign, state, and local governments and their agencies. The privacy bell will be incapable of being un-rung.
The recent Texas ruling joined the Northern District of Alabama decision from last March in casting doubt that the CTA falls within the government’s constitutional authority. We may soon have a third court weigh in. As Law360 notes:
A federal judge in Michigan said new disclosure requirements for small businesses seem burdensome and intrusive during a Monday hearing focused on the privacy implications of the currently blocked anti-money laundering law….
During a hearing in a separate legal challenge to the CTA, U.S. District Judge Robert J. Jonker said he was troubled by both the “massive amount” of information the government was seeking from small businesses and that the government was requiring the disclosure of nonpublic information to assist in criminal investigations without the need for a warrant.
“It invites the conclusion that the main purpose of the whole act is to get around the Fourth Amendment,” Judge Jonker said.
So the case against the CTA is gathering momentum. S-Corp is confident the constitutional challenges raised against the CTA will ultimately prevail, but that will take time and the CTA’s filing deadline is in two short weeks.
With the legislated delay in jeopardy and the 11th Circuit appeal still pending, the Texas injunction may be the last opportunity to protect the privacy of millions of business owners. As the judge in Michigan notes, once that data is collected, there’s no going back.
Main Street Still Fighting for CTA Delay
Today more than 100 trade associations joined with S-Corp in asking lawmakers to pass a Continuing Resolution bill that includes language delaying the Corporate Transparency Act’s reporting deadline. The effort was mounted following reports that some House members were seeking to strip the provision from the broader package, a move that would needlessly expose millions of law-abiding business owners and employees to stiff fines and penalties.
As the letter makes clear, a one-year delay is critical and would provide much needed relief and certainty to businesses, give federal regulators more time to execute affected entities, and allow various legal challenges to make their way through the courts:
FinCEN estimates that more than 32 million such entities will be affected by the new law just this year, with an additional 6 million each subsequent year as new businesses are formed. Yet as of December 1, 2024 – just one month before a year-end deadline – FinCEN has received less than 30 percent of the required filings, highlighting the stark education gap when it comes to the compliance obligations mandated by the CTA.
Adding to the confusion are the myriad legal challenges that have been filed throughout the country, and which stand at various stages of the legal process. Notably, a nationwide injunction against the CTA was recently appealed and will be heard by the Fifth Circuit, while an Alabama court ruling that found the CTA unconstitutional is pending appeal in the Eleventh Circuit. Small businesses therefore find themselves in a precarious position: they are currently under no obligation to file, but a single ruling could reverse that dynamic, leaving them with just days to comply with this burdensome and costly statute.
So where do things currently stand? We’ve heard from numerous offices that – thanks at least in part to outreach from our trade association allies and our collective members – the provision may be safe.
However, the broader bill is now in danger as more and more Republicans come out against it as the day progresses. As that opposition mounts, we once again urge those to reach out to their elected officials and ask them to include delay language in the final CR.
CTA Delay in Funding Bill
Big news for S corporations and other businesses covered by the Corporate Transparency Act – draft text of the negotiated legislation, which was released earlier today, includes a one-year delay of the Corporate Transparency Act’s (CTA) reporting requirements.
That means many businesses covered by the CTA – specifically those that existed prior to 2024 – will have an extra year to file their Beneficial Ownership Information reports. It’s a commonsense approach that S-Corp and its allies have pushed for over the last several years and, if enacted this week, will give 30 million businesses some much needed certainty heading into the New Year.
As we wrote earlier this week, a legislated delay is important even in the wake of a favorable ruling out of Texas imposing a nationwide injunction on CTA filing. That injunction is being appealed, and the Fifth Circuit has approved a dramatically accelerated timeline and appears to be gearing up to issue a verdict before year end. S-Corp is joining the Private Investor Coalition to submit an Amicus brief this week.
So the belt-and-suspenders approach is needed here.
The legislated delay is by no means a done deal – Speaker Mike Johnson faces an uphill battle getting the CR bill across the finish line, so the text released today could change as concessions are made to secure votes. Meanwhile, the Fifth Circuit could rule in the government’s favor and stay the nationwide injunction, forcing millions of covered businesses to file in the few remaining days of the year. As the WSJ noted this morning:
The Fifth Circuit could throw out the CTA on grounds Judge Mazzant lays out, but other courts are split. A federal judge in Alabama has ruled the CTA unconstitutional, while federal judges in Oregon and Virginia made preliminary rulings going the other way. The cases could go to the Supreme Court.
But Congress needn’t wait for courts to remove this looming burden from millions of small businesses. This is the kind of unnecessary regulation that Republicans campaigned to stop. A one-year delay is already under consideration as an amendment to the year-end spending bill being debated in Congress. Congress can adopt this amendment, deliver relief to small business, and give the courts the time they need to resolve this mess.
Our view is the injunction will remain in place and Congress will succeed in passing its spending bill, including the 1-year CTA delay, but we will just have to wait and see. The good news is there’s still time in the calendar for covered businesses to pause their filing and see where Congress and Courts end up. If all goes well, it’s going to be a very happy New Year indeed.
CTA Update | December 16, 2024
Notable Developments
- WSJ Highlights Legislative Effort
- Carol Roth on the Need for Certainty
- Is FinCEN Complying with the Injunction?
* * *
Legislative Update
Draft text of a Continuing Resolution – which Congress has to pass before Saturday to avoid a government shutdown – is expected to be released today, and many are watching closely to see if it includes a one-year pause of the CTA.
With the filing requirements currently on hold thanks to a Texas court ruling, why does Main Street still need a delay? Here are Caleb Kruckenberg and Andrew Grossman – who have both helped lead the legal battle against the CTA – with an op-ed in yesterday’s Wall Street Journal:
The burdens are staggering, even by the government’s accounting. FinCEN projects that more than 32 million entities would have to file reports in the first year, with an additional five million in each subsequent year. Compliance costs in the first year alone will be about $22.7 billion, FinCEN estimates. The utter chaos in the run-up to the Jan. 1 filing deadline suggests the real costs may be far higher, as every contractor, gasoline station and homeowners’ association discovered it needed to hire professionals to identify its “beneficial owners” and get the details right. As FinCEN helpfully notes, violations of the reporting requirement may incur civil penalties of up to $591 a day and even criminal penalties.
…Yet the Jan. 1 filing deadline remains a threat. The government has asked the Fifth Circuit Court of Appeals to put the injunction on hold. The government doesn’t dispute that reinstating the filing deadline for this unconstitutional mandate on such short notice would lead to chaos.
The bottom line is that a delay is the only logical conclusion here but it is unclear if the amendment has been included in the CR. As has been the case since Day 1, constituent voices matter most on this issue, so if you’re personally affected by the CTA, we hope you will contact your representatives and support a one-year delay.
* * *
Media Update
Our friend, small business advocate, and ally in the CTA fight Carol Roth has yet another reminder to Congress on the importance of a CTA delay, even in the wake of the favorable court ruling out of Texas. Here’s her op-ed that ran in Fox News the other day:
While this injunction offers small business owners a temporary reprieve against the “beneficial ownership information” (BOI) rule, they need more certainty.
…Congress needs to act to give small businesses clarity. In addition to delay bills in the House and the Senate, a repeal bill “Repealing Big Brother Overreach Act” introduced in the House by Rep. Warren Davidson, R-Ohio, and in the Senate by Sen. Tommy Tuberville, R-Ala., should be voted on by Congress.
Also, the Trump administration has an opportunity to come out and say that it won’t enforce any fines either – giving more clarity to small businesses headed into the end of the year – and, even better, that Trump’s Treasury will jettison this effort entirely.
We couldn’t agree more and hope Congress hears this message loud and clear.
* * *
Legal Update
Attorney Keith Bishop posted an interesting take regarding the Texas court decision to halt the CTA and FinCEN’s decision to continue collecting those filings:
Earlier this month, U.S. District Court Judge Amos L. Mazzant preliminarily enjoined the Corporate Transparency Act and its implementing regulations. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 4953814 (Dec. 03, 2024). Two days later the Department of Justice filed an appeal with the Fifth Circuit Court of Appeals on behalf of the Department of Treasury. At about the same time, the FinCEN (a bureau within the Department of Treasury) issued an alert which included the following (emphasis added):
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
I find it interesting that the FinCEN has decided that it can continue to collect filings given Judge Mazzant’s conclusion that the “CTA is likely unconstitutional as outside of Congress’s power”. If Congress had no power to enact the CTA, what power does the FinCEN have to implement it, even on a voluntary basis. What is the authority of the FinCEN to spend money on an unconstitutional program? In the corporate context, this would be characterized as ultra vires on the part of the FinCEN.
As Bishop concludes, if the CTA itself is enjoined, doesn’t that mean that it cannot be applied even on a voluntary basis?