As I mentioned last month, I am, and always have been, a big fan of surprises. But only the good surprises.
Well, I kinda/sorta got a surprise the other day from the U.S. District Court for the Northern District of Alabama regarding the Corporate Transparency Act (CTA).
Some of you (like maybe two of you) may recall that I wrote about this in February — and may even recall what the hell the CTA is and does.
For the rest of you, here’s a little refresher: The Corporate Transparency Act was enacted in 2021 and actually went into effect Jan. 1, 2024. The goal of the CTA is to catch things like tax fraud, money laundering and financing of terrorism by gathering additional ownership information on certain U.S. businesses that are operating in or access the country’s market. According to Congress, the CTA will prevent folks from hiding or benefiting from ownership of U.S. businesses to conduct illegal operations. Per Congress, this is a widely used tactic by bad actors that impacts national security and economic integrity.
Starting on Jan. 1 of this year, damn near all small businesses are required to file a Beneficial Owner Information (BOI) report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying individuals associated with the reporting company.
“Oh yeah, now I remember. But will this impact me?” you ask.
Unfortunately, the answer is most likely YES!
To be perfectly honest, and according to some sources, the CTA will currently impact about 30 million businesses. However, it will NOT impact members of the National Small Business Association (members as of March 1, 2024).
I can almost hear you saying it now: “What the hell?! How come they got off from having to comply with the requirements of the CTA? “
This brings us back to the topic of the second paragraph of this column, when I mentioned my latest surprise.
In a recent ruling, the aforementioned Alabama Federal Court found that the CTA was unconstitutional, and the government was permanently enjoined (or prevented) from enforcing it against the plaintiff (the NSBA and its members as of March 1, 2024).
Now, here comes the good part: The court’s ruling ONLY applies to the plaintiffs in that particular lawsuit. In other words, if you weren’t a party to that lawsuit the clock is ticking, and the filing requirements of the CTA may still apply to you.
Without getting to far into the weeds, the plaintiffs in this case basically argued that the BOI is an invasion of privacy, creates too much of a burden on small businesses and that the CTA exceeds the Constitution’s limit on Congress’ power.
In response, the government said, “Nuh-uh.” (Ok, maybe not exactly.) They argue that Congress has the authority to do this under Plenary Power of Congress to Conduct Foreign Affairs, the Commerce Clause and the Taxing Power and Necessary and Proper Clause.
I could go into detail about the arguments made regarding each of these, but we definitely do not have the space. (And to be honest, it could trigger my recurring nightmares about law school — and I don’t need that.) If you really want to know, come find me at a conference and we can discuss it. I’m confident you’ll regret asking me about it.
So, where does that leave us now?
Well, at the present time, not much has changed for most small businesses. According the FinCen, the decision only applies to 0.1% to 0.2% of the over 30 million firms that will be required to file.
So, unless you are in that very small percentage, plan on filing your BOI.
It is also highly likely (so likely that I’d bet my house on it) that the government will appeal the recent decision in its entirety to the Eleventh Circuit Court of Appeals.
In addition, I think Congress will tweak the language a bit to overcome any objections the court has. Even the court noted that this should not be too hard to do. Of course, since 2024 is an election year, it won’t get done this year — and we all know nothing gets accomplished in an election year. (Nothing gets done in the years between elections either, but that’s another story.)
Of course, there are a few exemptions to the CTA filing requirements (other than being a party to the Alabama lawsuit). This column does not contain all the details, so I suggest you review the CTA yourself or consult with a professional.
Brad Klepper is president of Interstate Trucker Ltd., a law firm entirely dedicated to legal defense of the nation’s commercial drivers. Brad is also president of Driver’s Legal Plan, which allows member drivers access to his firm’s services at discounted rates. For more information, contact him at (800) 333-DRIVE (3748) or interstatetrucker.com and driverslegalplan.com.
