UPDATE – Small Business Owners Dodge a Bullet
Millions of small business owners across America dodged a bullet on Tuesday (12/3) because a federal district court in Texas issued a nationwide preliminary injunction forbidding the enforcement of the CTA. The Corporate Transparency Act (CTA) (P.L. 116-283) was passed by Congress in 2021 as an anti-money-laundering initiative. However, it required millions of businesses to disclose information about its owners to a government website on a special Beneficial Ownership Information (BOI) Report, by December 31, 2024. The Court held that the CTA was unconstitutional because it exceeds Constitutional authority, and compelled compliance that would irreparably injure “reporting companies”. (FinCEN estimated that it would cost reporting companies $22.7 Billion to comply.) The CTA contained no exception for micro business owners, millions of which were unaware of this law.
The case at issue is Texas Top Cop Shop, Inc. et al. v. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24). “Under the Court’s injunction, FinCEN is barred from enforcing BOI filing requirements for the time being. The penalties for noncompliance were egregious, with fines of $591/day and up to two years in prison!
Please note that this ruling is not final. A final determination at the federal appeals level may take a couple years. It appears the court realized that something had to be done now to avoid constitutional overreach and the huge compliance cost.
A new law requires that every small business (which is officially registered as an LLC or a corporation with any State’s Secretary of State) to file a special report to a government website. The penalty for not filing by 12/31/24 is $591 per day! The penalty is limited to $10,000.
As usual, the government has done a very poor job of communicating this responsibility and has seemingly relied on CPAs and Attorneys to inform their business clients. However, I have been advised that assisting with this would be the unauthorized practice of law (since it is not a tax form), so I have heeded that counsel.
This article is a last-minute reminder for Small Business Owners, Farmers & Ranchers to file a Beneficial Ownership Information (BOI) report with FinCEN (which is the Financial Crimes Enforcement Network, which is a division of the US Department of Treasury) by December 31, 2024. The website to comply with this requirement is: https://fincen.gov/boi.
After watching a couple online videos, I was able to complete the required BOI report online in just under an hour. The official YouTube video sponsored by FinCEN is: https://www.youtube.com/watch?v=GydCvfbKxPw. It was helpful but made the video made it appear easier that it was. (Please be advised that you will need your SSN, company EIN and a copy of your driver’s license or passport.)
The penalties are egregious at $591/day, up to $10,000! And there is no de minimis exception (as there logically should have been). The alleged purpose of this law was to stop financial crimes such as money laundering, especially by foreign actors. How a plumber making $1,000 a year on the side, in mid Missouri, is going to assist money launderers totally escapes me. (Sure, I have seen the Netflix miniseries “Ozark”, but the Byrde’s were operating a fictitious casino that handled tens of millions of dollars. Evildoers don’t deal in chump change.)
Obviously, Congress should have put a minimum level of income on the CTA, but they didn’t. As of 2022 there were 31.5 million business owners and farmers in 2022 that made less than $100K. I estimate Congress cost micro business owners more than $1 billion, needlessly.
Legal Challenge
The National Small Business United d/b/a National Small Business Association (NASB) filed a lawsuit against the federal government. (Technically against Jante Yellen, in her official capacity as Secretary of the Treasury and won the case filed in the US District Court of Northern Alabama (Case NO. 5:22-cv-1448-LCB)). The US District Judge, Liles C. Burke, concluded that the Corporate Transparency Act (CTA) violates the first, fourth, and fifth Amendments of the US Constitution. That ruling upheld the Motion for Summary Judgment by the NASB, but this will only help you if you are a member of the NASB.
In summary, the Corporate Transparency Act (CTA) is real. It requires every state-registered business to file a Beneficial Ownership Information (BOI) report with FinCEN by December 31, 2024. If you watch the video (linked above) you should be able to do it yourself online (https://fincen.gov/boi) in an hour or two.
