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Trade Groups ask Congress to delay CTA after court rules it unconstitutional

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Associations | Business Practices | Legal
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Small business associations are asking Congress to pass legislation that will delay the filing deadlines of the Corporate Transparency Act (CTA) in light of a federal ruling which found the act unconstitutional.

The letter, signed by about 130 business organizations, including the Society of Collision Repair Specialists, asks for the passage of S3625 introduced by Sen. Tim Scott (R-SC). 

The companion to this legislation (H.R. 5119), introduced by Representatives Zach Nunn (R-IA) and Joyce Beatty (D-OH) was adopted by the House of Representatives on a bipartisan vote of 420-1 on December 12, 2023.

Earlier this month, an Alabama U.S. District Court judge ruled the CTA unconstitutional, according to a Reuters article. It says the government is expected to appeal the finding. 

“The Government says that the CTA is within Congress’s broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations,” the article says Judge Liles C. Burke wrote in the ruling, issued March 1. “The Government’s arguments are not supported by precedent. Because the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress policy goals.”

Burke’s decision protects members of the National Small Business Association (NSBA), which brought the suit. However, 32 million other small businesses in the nation are still at risk of being required to meet the filing requirements. 

“The court ruling creates two classes of small business, the members of the NSBA who are protected by the Constitution and everybody else who needs to continue to comply with this unconstitutional law,” said Brian Reardon, president of the S Association, in an email. “Our goal is to push both the court challenge and legislation in Congress to protect everybody. 

The letter sent to Congress says delaying the filing deadline by one year would accomplish three tasks: 

    • It would allow the court process begun with the recent decision in National Small Business Association v. Yellen to work its way through the Appellate and Supreme Courts.
    • It would be consistent with congressional intent to give covered entities two years to comply with the CTA’s reporting requirements.
    • It would provide the business community and the Financial Crimes Enforcement Network (FinCEN) additional time to educate millions of small business owners regarding the new reporting requirements and the onerous penalties resulting if they fail to comply. 

“The CTA began as an earnest attempt to combat illicit financial activity but has morphed into a bureaucratic nightmare targeted squarely at America’s smallest businesses,” the letter says. “It subjects covered entities and their “beneficial owners” to vague and complex reporting requirements while putting their sensitive personal information at risk. Failure to comply with the new statute — even in cases amounting to nothing more than a paperwork violation – can result in stiff fines and criminal penalties.” 

CTA specifically burdens the smallest of businesses with reporting requirements applying only to entities with 20 or fewer employees or less than $5 million in revenue, the letter says. 

“The very companies least equipped to shoulder the regulatory burden imposed by the CTA,” the letter says. 

The letter says there is also fear that many small businesses will have heard news about the court case and believe that the law no longer impacts them. 

“FinCEN, meanwhile, has no practical means of distinguishing between NSBA members and other small businesses,” the letter says. “The NSBA’s membership is not public, and the courts have previously ruled that the government cannot compel trade associations like the NSBA to turn over their membership lists.” 

Filing under the CTA started more than two months again, the letter says. Yet, only 2% of entities have submitted the information. 

“One reason for this low compliance rate is that most business owners are ignorant of the new law,” the letter says.


Photo courtesy of uschools/iStock

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