Intrusive Small Business Reporting Law Slapped With Nationwide Injunction
If you own a small business, you may have just dodged a bullet you didn’t even know about. Last week, a federal judge in Texas issued a temporary restraining order against a new requirement that small companies identify their owners to the federal government. Since many small businesses remain unaware of the intrusive rule, this is a welcome reprieve for people who face nasty civil and criminal penalties for failing to comply. Don’t get too comfortable yet, though: The feds plan to appeal, which means you should probably still get your paperwork in order, just in case.
‘Significant Regulatory Punch’
Beneficial Ownership Information—specifically, ownership details about small corporations with 20 or fewer employees—reporting requirements were adopted in 2021, passing under most Americans’ radar.
“When Congress passed the 2021 National Defense Authorization Act, it included a bill called the Corporate Transparency Act (‘CTA’). Although the CTA made up just over 21 pages of the NDAA’s nearly 1,500-page total, the law packs a significant regulatory punch, requiring most entities incorporated under State law to disclose personal stakeholder information to the Treasury Department’s criminal enforcement arm,” Judge Liles C. Burke of the U.S. District Court for the Northeastern District of Alabama helpfully summarized in a court ruling earlier this year.
Burke wasn’t exaggerating about the “significant regulatory punch.” According to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which has responsibility for turning the screws on business owners regarding this law (and many others), “a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. As of the time of publication of this FAQ, this amount is $591.” You could also get two years in prison and a $10,000 fine.
Burke’s March ruling came in a lawsuit brought against the law by the National Small Business Association (NSBA), which contended that the law is unconstitutional. Burke agreed, finding the law didn’t even pretend to assert constitutional justification for the federal government imposing ownership reporting requirements on businesses incorporated under state laws. He forbade enforcement of the law against the NSBA and its members.
A Second Judge Tears Into the Law
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