The Corporate Transparency Act confusion continues, with an injunction against a controversial new corporate filing requirement back in effect once again.
That means small business owners do not have to file a report on their beneficial owners by Jan. 13 after all.
The ruling overnight Thursday reinstating the injunction follows what had already been a confusing series of court decisions. A Texas court had issued an injunction on Dec. 3, but then a motions panel for the Fifth Circuit Court of Appeals reversed that two days before Christmas, after considering an emergency motion from the federal government for a stay pending appeal.
The Fifth Circuit Court of appeals has now decided, however, thatthe Dec. 3 injunction issued by the U.S. District Court for the Eastern District of Texas must be reinstated to preserve the status quo while the government’s appeal proceeds. So, overnight, they reversed the reversal.
Secretary of State Chuck Gray was among those cheering that.
“This means that the enforcement of the Jan. 13 deadline and the associated CTA reporting requirements have been blocked once again while substantive arguments are heard by the court,” Gray said in a post on Facebook. “It should also provide some time for the incoming Trump Administration and the new Congress to repeal the CTA.”
Gray had been calling for Attorney General Bridget Hill to seek an injunction against the rule in Wyoming, on the grounds that it is an overly broad, unconstitutional requirement and violates state sovereignty.
What Is A Beneficial Owner Anyway?
A beneficial owner is considered anyone who has a major influence on a company’s decisions or operations, such as a president or CEO, those who own 25% or more of a company’s shares or those who have a similar level of control over the company’s equity.
The filing is aimed at small businesses. It’s required from any for-profit, privately held companies registered to conduct business in the United States that have 20 or fewer employees or have $5 million or less in annual gross sales or receipts.
It won’t apply to publicly traded or non-profit companies, which both already have their own reporting requirements. There are also 23 exemptions listed by FinCEN, the Financial Crimes Enforcement Network, ranging from banks to insurance companies and public utilities.
The report requires taxpayer identification numbers, legal names and trademarks as well as current U.S. addresses for either the main business site, or, if a foreign-based corporation, a U.S. operational location.
Forms will not be required annually, but must be updated any time there’s a change, whether it’s due to marriage or divorce, a change of address or a new driver’s license number.
The penalties for noncompliance are steep. Up to $10,000 in fines and up to two years in prison.
Duplicative, Time-Consuming Filing
Advocates of the CTA have said it’s required to crack down on tax fraud, money laundering and other financial misdeeds, but critics say it’s overly broad and duplicative.
That’s because small businesses have already filed a similar beneficial ownership form with FinCEN.gov to get a bank account. Financial institutions already require this process to ensure they’re not being used to front money laundering, tax fraud or other financial misdeeds.
“The biggest issue we collectively have as small business owners is the constant stream of regulations by local, state and federal government,” Certified Public Accountant Rob Dickerson told Cowboy State Daily. He’s been active in trying to alert small businesses of this new requirement. “The CTA is another example of the regulatory burdens imposed by government without respect to the cost associated. If you want small business to thrive, we need less government regulation, more time focused on our businesses.”
Small business owner and retired lawmaker Tom Lubnau told Cowboy State Daily the filing is a headache to do.
For one thing, it’s hard to even find the correct site.
“There’s a whole bunch of government scam websites. When you do a Google search, it takes you to those websites first,” he said. “The first two sites are charging to file the form, which you don’t have to do. The site you want is FinCEN.gov.”
The headaches don’t end there, though, Lubnau said.
“It’s just such a nightmare, so slow and arduous,” Lubnau said. “I’ve got two family limited liability companies, and that website is just really hard to negotiate. It’s notoriously hard and it takes me half a day every day to figure out how to file it.”
Not only, that, but it requires a photo scan of a driver’s license, Lubnau said.
“I do think it’s an overly intrusive statute, and I think that probably it’s going to go away when the Trump administration takes office,” Lubnau said.
But he went ahead and filed anyway, he added. That way he doesn’t have to keep tabs on the whole whiplash legal proceedings where the CTA is off again, on again, then off again.
“It just depends on how much you want to bet on that going away when the Trump administration takes office,” he said.
Renée Jean can be reached at renee@cowboystatedaily.com.
