Recent changes to authorities of the Corporate Transparency Act are big victories, but NSBA continues its fight for Small Business to fully repeal the unconstitutional CTA.
Last week, the U.S. Dept. of the Treasury and its Financial Crimes Enforcement Network (FinCEN) unit issued an interim rule that essentially renders useless the intended database of company ownership information to be established under the Corporate Transparency Act (CTA) that aimed to combat money laundering and other crimes.
The interim final rule narrows the companies responsible for reporting ownership information under the CTA to only foreign-reporting entities.
After several defeats to challenges of the CTA in federal court, including NSBA’s case - the first filed in the nation, under which NSBA members in good standing as of March 1, 2024, remain the only fully exempt class of Small-Business owners - Treasury signaled its plans to change the rules earlier this month.
This change means fewer than 12,000 companies on average per year must comply with what is left of the CTA, compared with more than 32 million Small Businesses first estimated to be impacted by the reporting requirements, according to the rule.
Many foreign companies already create U.S. subsidiaries to do domestic business - a strategy that exempts them from reporting under the revised CTA rule.
Foreign companies owned by U.S. citizens also do not have to report beneficial ownership information (BOI) under the changed CTA rule.
Without a federal database, states may create their own reporting systems, with CTA changes having effectively been eliminated without formal repeal.
The CTA was originally enacted as part of the broader Anti-Money Laundering Act of 2020, included in defense authorization legislation, aimed at combating money laundering, terrorism, and financial crimes by creating a database of ownership information for law enforcement to access without a warrant.
Under the CTA, Treasury has the authority to create more exemptions than Congress. Treasury said in the rule change it was narrowing the scope to reduce burden on businesses.
Banks already are required to collect ownership information sought under the CTA from their clients, which the government asks for amid criminal investigations. With Treasury’s changes, that practice will continue, but supporters of the CTA argue the rule change eliminates efforts to create a centralized source for BOI, potentially making it difficult for financial institutions to verify who owns what.
Ahead of the rule change from Treasury, millions of companies already filed their BOI reports with FinCEN. The most recent reporting deadline was March 21, which had been extended multiple times amid lawsuits challenging the constitutionality of the act.
Companies and people subject to the reporting rules complained the law created too big of an administrative burden, and most Small Businesses are relieved by the new streamlined rule, practitioners said.
On the state level, some legislatures have already created their own version of CTA reporting requirements. This could cause companies operating in different states to have to file multiple reports, all with slightly different deadlines, information requests, and fees.
Ultimately, at this time, the CTA is still a federal law on the books, meaning another administration could withdraw Treasury’s recent rule change and once again arbitrarily enact undue reporting requirements on Small Business.
FinCEN is accepting comments on the rule. It plans to issue a final rule later this year.
Follow NSBA as we continue working to fully repeal the CTA, and join our fight to restore common sense policy for America’s most important economic community - Small Business.
