North Carolina Roundtable Highlights 199A
Earlier today members of the Main Street Employers Coalition met for a roundtable event in Greenville, North Carolina, hosted by Congressman Greg Murphy. The gathering was part of a broader House Ways & Means Committee initiative to solicit input from the business community as lawmakers develop legislative solutions to avert the 2025 fiscal cliff. It also comes on the heels of similar events with Congressman Smucker in Pennsylvania and Congressman Steube in Florida.
The event took place at East Carolina University and drew a diverse group of local business owners. Among the industries represented were distribution, farming, construction, and real estate, just to name a few, all of whom are unified around a singular goal: making permanent the Section 199A deduction. Participants shared their perspectives on the significance of the provision, as well as their firsthand accounts of how it has enabled them to reinvest in their businesses and local communities.
The event highlighted the critical importance of individually and family-owned businesses organized as pass-throughs, which supply a large majority of jobs in Murphy’s district and rely on the provision. According to data from EY, pass-throughs employ nearly 70 percent of private sector workers in the North Carolina third congressional district, yet face significantly higher rates with the expiration of 199A come the end of next year. Meanwhile, publicly-traded corporations, whose lower 21 percent rate was made permanent, employ fewer than one out of every ten jobs in the district.
S-Corp and its allies appreciate Congressman Murphy’s attention to this critical issue, and are grateful to him for hosting this important event. We look forward to participating in many more of these across the country in the coming months and getting the word out about the importance of Section 199A.
Talking Taxes in a Truck Episode 39: Ken Kies
Our guest this week is Ken Kies — Managing Director of the Federal Policy Group, a former Chief of Staff at the JCT, and one of DC’s foremost tax policy experts. Ken discusses the looming “fiscal cliff” and what it means for pass-throughs, outlines the long-term fiscal imbalance we face, and shares his best marathon training tips.
This episode of Talking Taxes in a Truck was recorded on August 5th, 2024, and runs 38 minutes long.
Smucker Leads 199A Roundtable in Pennsylvania
Yesterday, S-Corp and its Main Street allies headed to southern Pennsylvania for a Tax Team event hosted by Representative Lloyd Smucker. Smucker represents the state’s eleventh congressional district and also serves as the Chair of the Main Street Tax Team. Yesterday’s event was part of the process initiated by Ways & Means Chairman Jason Smith (R-MO) to create various Tax Teams tasked with identifying legislative solutions to avert the 2025 fiscal cliff.
Attended by several dozen local business owners, congressional staff, press, and national trade association representatives, the event kicked off with a walking tour that highlighted several Main Street businesses in the neighboring towns of Shrewsbury and New Freedom.
Participants then gathered for a roundtable discussion at the offices of Crescent Industries, an injection-molded plastics manufacturer. The ensuing discussion covered the critical topic that’s top of mind for millions of Main Street businesses nationwide – the looming expiration of the Section 199A deduction and the importance of making the provision a permanent fixture of the tax code.
Congressman Smucker and his colleague Mike Kelly (R-PA) heard from business owners representing a wide range of industries, including a dairy farmer, hair salon owner, medical device manufacturer, etc. – who all emphasized what the deduction means for their businesses and how it’s helped them invest in their communities.
Thursday’s event is yet another reminder that privately-held companies are the backbone of local communities nationwide. As our EY study shows, small and family-owned businesses organized as pass-throughs supply nearly two-thirds of all jobs in Congressman Smucker’s 11th district.
Despite the outsized role they play in job creation and investment, these businesses face a massive tax hike at the end of 2025 when Section 199A is scheduled to sunset. Meanwhile, publicly-traded corporations – who supply just 11 percent of the jobs in the district – will continue to pay far lower rates.
As the lead sponsor of the 199A permanence bill and chair of the Main Street Tax Team, the business community appreciates the leadership Congressman Smucker provides on this critical issue. S-Corp is grateful to the Congressman and his staff for putting together a fantastic event and we look forward to working with the Congressman to see 199A made permanent next year.
CTA Update | July 30, 2024
Notable Developments
- S-Corp leads push for CTA delay amendment in NDAA
- Approps bill with delay language gets veto threat
- FinCEN notice makes clear CTA is unnecessary
- Utah business groups file suit
- Bloomberg misses the point
Legislative Update
The Main Street business community came out in force last week 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.
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 back in 2020 by Senator Sherrod Brown (D-OH) and others, S-Corp and its allies are being open and transparent about their efforts now.
Click here to read the full trade association letter
Legislative Update (Part 2)
The White House last week issued a “statement of administration policy” that makes clear President Biden would veto the Financial Services and General Government Appropriations Act (HR 8773) if it ultimately lands on his desk in its House-passed form. As we flagged in an earlier alert, that bill included language that would effectively pause implementation and enforcement of the CTA. Here’s the relevant part from the bill summary:
Prohibits funds to be used for the Financial Crimes Enforcement Network to promulgate the beneficial ownership reporting rules that have been found unconstitutional or do not reflect Congressional intent.
And from the legislative text itself:
SEC. 132. None of the funds made available by this Act may be used by the Financial Crimes Enforcement Network to implement or enforce beneficial ownership reporting rules pursuant to division F of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2020 (Public Law 116–283) that have been found by a Federal court to be unconstitutional or do not reflect Congressional intent, including reporting rules for small businesses and homeowners associations.
Finally, here’s the White House response:
Financial Crimes Enforcement Network (FinCEN). The Administration strongly opposes the reduction in funding provided by the bill for FinCEN from the FY 2025 Budget request level. The bill would undermine FinCEN’s implementation of the Corporate Transparency Act, undercutting a critical anti-money laundering initiative and reducing support for the approximately 32 million small businesses that are required to file Beneficial Ownership Information with FinCEN.
The Senate is working on appropriations bills now – in light of this veto threat, it’s highly unlikely we’ll see similar language adopted in their version of the FSGG spending package.
Regulatory Update
In a “notice to customers” issued by FinCEN last week, the agency inadvertently reinforces a point we’ve been making for years now: that the beneficial ownership information required by the CTA is already provided to FinCEN through the banks under existing Customer Due Diligence (CDD) rules.
See for yourself – the table included in the notice is supposed to demonstrate just how different the reporting regimes are, but instead, it merely confirms that they are almost entirely duplicative.
The CDD rules were put into effect just a few years ago and they offer the best means of identifying and stopping illicit financial transactions. Under the CDD rules, beneficial ownership reporting targets the accounts and transactions where money laundering actually occurs.
The CTA, meanwhile, has no connection to any financial transactions. Moreover, whereas the banks collecting beneficial ownership information of their account holders are in a position to ensure its accuracy, there is no third-party oversight of the CTA reporting. FinCEN is literally relying on the criminals to accurately report what they are doing.
They won’t, which means the burden of the CTA will fall entirely upon the shoulders of law-abiding small businesses owners and it will be wholly ineffective at targeting money laundering or other crimes.
Legal Update
As Law360 reported this week, “Several small-business associations in Utah became the latest group to challenge the Corporate Transparency Act’s disclosure requirements, telling a federal court Monday the statute violates several constitutional provisions, including the guarantee of due process.”
To recap our latest alert, six other suits have been filed prior to the one in Utah:
- 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)
- First hearing scheduled for 9/27/2024 before 11th Circuit Court of Appeals
Media Coverage
Bloomberg ran a piece yesterday on the Scott-Lankford amendments and the battle ensuring over possible CTA delay. Entitled “Corporate Pushback Mires US Anti-Money Laundering Disclosures,” it features a litany of quotes from CTA proponents who argue the law is essential and downplay the statute’s pitfalls:
The hope, according to one Treasury official, is to quell businesses’ doubts and preempt concerns that could later motivate legal action…But once businesses see the form, they’ll realize: “It’s maybe even faster than filing out my kids’ summer camp forms,” the official said.
“A judge sitting in a courtroom hearing a complaint from somebody about unnecessary burdens of bureaucracy, who knows absolutely nothing about the way of the international criminal world, and doesn’t appreciate the extent to which our mortal enemies overseas support themselves through this dark economy, is going to miss the key part of the equation,” [Senator Sheldon] Whitehouse said.
…“If you have a speed limit, but then you don’t apply it to certain cars, then all those cars are going to turn instantly into speeders and it’ll be dangerous. Some rules just have to be the rules,” Whitehouse said. “It requires information that you can fill out, for most people, in 15 minutes.”
Notably absent is the perspective of small business owners. That last quote is especially disingenuous – the CTA has more than 23 exemptions covering numerous industries and millions of businesses. It literally exempts large businesses and targets small ones. And while initial compliance may be easy for some filers – for others it will require hiring people – what is not easy is remembering under the penalty of jail to keep everything updated within 30 days of any change. Nor is knowing whose information gets reported – FinCEN’s definition of beneficial owner is unconstitutionally broad.
CTA Delay Gets Renewed Focus in Senate
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.