Remember the Corporate Transparency Act (CTA)? It would have required 32.5 million companies to submit sensitive information regarding their “beneficial owners” to the U.S. Department of Treasury’s Financial Crimes Enforcement Network by January 1, 2025. This week, a federal court issued a preliminary injunction prohibiting the federal government from enforcing the act anywhere in the country. The court determined the act is likely unconstitutional and that its implementation would harm reporting companies if they were forced to comply.
The CTA was enacted as part of the 2021 National Defense Authorization Act and would have required LLCs and other covered entities to report personal and financial information about the organizations, their owners, and their managers.
Reporting requirements for businesses in the name of corporate transparency would have unfairly targeted small businesses, ACCA strongly believed. In spring 2024, ACCA attended a hearing to address implementation of the CTA and also sent a letter in opposition to the act. The hearing focused specifically on the increased regulatory burden CTA enforcement places on small businesses in respect to reporting and compliance.
Companies affected by CTA would have been required to file a beneficial ownership report by January 1, 2025 if they were created or registered to do business prior to January 1, 2024. Companies created or registered on or after January 1, 2024, and before January 1, 2025 would have had 90 calendar days after receiving notice of the company’s creation or registration to file their reports. More information about the reporting requirements can be found on FinCEN’s website. FinCEN also published a Beneficial Ownership Information Small Entity Compliance Guide which can be found here.
In conjunction with the hearing, ACCA President and CEO Barton James sent a letter to Senator Tommy Tuberville and Representative Warren Davidson who introduced legislation to repeal the CTA. The letter states:
This law unfairly targets small businesses, including many of our members, by classifying any entity with fewer than 20 employees or under $5 million in revenues as a “shell company.” This sweeping definition mandates extensive reporting of “beneficial owners” to FinCEN, covering everyone from owners to any influential person within the company.
FinCEN’s current expectation of receiving over 32 million such reports annually attests to the CTA’s excessive reach and the impracticality of its enforcement. The law’s effectiveness is further doubtful as it relies on self-reporting by the very individuals it seeks to regulate. Furthermore, the recent District Court ruling in Northern Alabama, which found the CTA to exceed constitutional bounds, highlights the Act’s legal fragility. Despite this, many small businesses remain under the threat of severe penalties for non-compliance.
Any person who would have ‘willfully violated’ CTA’s beneficial ownership reporting requirements would have been subject to a civil penalty of up to $591 for each day that the violation continues. They may also have been subject to criminal penalties up to 2 years imprisonment and a fine of up to $10,000. Violations included willfully neglecting to file a beneficial ownership report, willfully filing false beneficial ownership information, or willfully failing to correct previously filed beneficial ownership information.
The court’s preliminary injunction provides temporary relief for the January 1, 2025 deadline; it’s important for contractors to watch for future updates on these burdensome reporting requirements. ACCA will continue encouraging Congress and the incoming administration to roll back this and other regulatory burdens on small businesses.
This article was originally published May 3, 2024. It was updated on December 4, 2024 following the court’s preliminary injunction ruling.
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