A requirement for an estimated 34 million small businesses to comply with the Corporate Transparency Act (CTA) by Jan. 13 is again on hold as the courts continue to determine its viability. Some legal experts are encouraging those businesses to comply now to avoid the possibility of harsh penalties down the road.
The CTA, passed as part of the National Defense Authorization Act in 2021, initially required federal reporting requirements for most small businesses by Jan. 1, 2025. Failure to do so would result in civil penalties of $591 per day (up to $10,000) and two years in prison.
It was enacted as part of the Anti-Money Laundering Act of 2020, which put new reporting requirements for businesses to the Financial Crimes Enforcement Network (FinCEN) to expose illegal activities such as using shell companies and money laundering to hide funds.
On Dec. 26, 2024, the U.S. Court of Appeals for the Fifth Circuit (Texas), responding to a lawsuit from the National Federation of Independent Businesses (NFIB), reinstated a nationwide injunction, stopping the requirement for the second time. That ruling reversed an earlier decision on Dec. 23, 2024, which reinstated the CTA and its reporting requirements.
In summary, the CTA requirement is on hold now while under court review.
Amid the court turmoil and uncertainty surrounding the requirements, and confusion over what small businesses need to participate, some legal experts warn that it might be in a company’s best interest to sit down and fill out the required information.
“We’re telling most of our clients just to go ahead and file. At some time, the court merry-go-round is going to stop and we don’t want them to be caught non-compliant,” attorney William Quick, the CTA chair with Kansas City-based law firm Poisinelli, PC, told The Epoch Times.
“For most companies, the filing itself is not that difficult and you can get it done in 15 minutes. Once you have the information you need, it’s pretty easy and not more than what you have on your driver’s license.”
However, Quick said there has been no determination of an enforcement arm for compliance should the CTA requirement be reinstated.
“FinCEN has the authority, but not the capacity, to enforce. I think what will happen is this database will become the second stop in the audit process for the IRS. I also think that the Department of Justice may potentially use it as part of other proceedings. But it’s highly unlikely that FinCEN is going to start prosecuting and sending people to prison,” he said.
Meanwhile, the NFIB was thrilled with the latest court decision, saying it hoped it would eventually eliminate the CTA requirements for small businesses altogether.
“The court’s reinstatement of the nationwide injunction is a welcome sigh of relief for small businesses,” Rob Smith, senior attorney of NFIB’s Small Business Legal Center, said in a statement on its website.
“Since being told earlier this week that they must urgently submit their BOI [beneficial ownership information] reports, our nation’s small businesses have experienced enormous chaos and confusion. Thankfully, the court’s latest decision recognizes that the CTA and BOI reporting requirements pose serious constitutional questions. It also provides Main Streets across the country with a reprieve from this harmful mandate while our lawsuit proceeds.”
The CTA requires listing beneficial owners who directly or indirectly have a significant ownership stake in a company and who own at least 25 percent of the company’s shares or may have similar control over the equity in a company.
While, according to the NFIB, the CTA requirement affects more than 30 million businesses in the United States, there are exceptions for others, including publicly traded companies, those with more than 20 full-time U.S. employees, and businesses operating in a regulated industry such as banking, utilities, or insurance.
The organization and its 30,000 members also support legislation introduced in the U.S. House of Representatives, HR 8147, known as the Repealing Big Brother Overreach Act, which would repeal the CTA.
Attorney Jeffrey Lewis, who leads the Income Tax School as part of the Ohio State University College of Food, Agricultural, and Environmental Sciences, told The Epoch Times that he, too, is advising small businesses to go ahead and fill out the CTA requirements and is leading by example.
“I do own my own small business, and I went ahead and filed because, being an attorney, I am risk-averse and didn’t want to take a chance of missing a deadline,” he said.
“I think it all depends on what you believe. If you think this is a government overreach and you don’t want to give out your information, it’s a wait-and-see approach. For me, basically, it’s information on my driver’s license the government already has and isn’t intruding too much into my personal information.”
The CTA is currently being heard by the merits panel of the U.S. Court of Appeals for the Fifth Circuit and has been expedited to oral arguments at the next level. Other federal courts are also considering CTA challenges. Lewis said what happens next is anyone’s guess.
“It’s honestly a toss-up. I’ve read the opinions of different courts, and while there’s substance to the argument that this isn’t constitutional law, my advice to a client is to be wary and stay informed,” he said.
