The legal battle over the Corporate Transparency Act and the mandate for reporting beneficial ownership information continues.
On December 18, 2024, the New Civil Liberties Alliance filed an amicus curiae brief in Texas Top Cop Shop v. Garland, urging the Court of Appeals for the Fifth Circuit to reject the government’s request for a preliminary injunction to suspend or reject enforcement of the CTA. . Only a few days later the Court of Appeal decided to do so lift the order on December 23.
The CTA requires organizations filing under state law to submit detailed reports containing sensitive information to the Treasury Department.
“NCLA is concerned about the government’s expansive interpretation of the Commerce Clause to give an administrative agency the power to regulate and obtain sensitive information from more than 30 million for-profit and nonprofit corporations, without regard to any connection to economic activities that affect interstate commerce,” argued Sheng Li of NCLA, counsel for amicus curiae. “Such an interpretation would convert the Commerce Clause into a grant of general police power – a power that the federal government does not possess and that belongs to the states.”
The Supreme Court has drawn a clear line by limiting the scope of the Commerce Clause to only economic activities that have a substantial effect on national markets, Li noted, adding that the government’s request to suspend the preliminary injunction would constraint is ignored.
“According to the administration, Congress could regulate the establishment and continued existence of corporate entities based on the theory that such entities will one day engage in economic activities that affect interstate commerce,” Li noted. “This court should deny the motion to stay because it is based on a limitless interpretation of the Commerce Clause that is wholly incompatible with limited government.”
Failure to comply with the filing requirement, whether by omission or by providing false information, will result in serious civil and criminal penalties that are not tied to commercial transactions or to any other form of economic activity, and are not limited to for-profit companies . but also apply to certain non-profit organizations.
The only “activity” that triggers the CTA reporting requirements is the entity being formed by filing incorporation papers with the appropriate officer, LI said.
“Such mere filing is not an economic activity that can be regulated under the Commerce Clause because it does not involve the production, consumption, or exchange of any good or service for which a national market exists. Nor can the government anticipate future economic activities that a company can expect. person will one day be concerned with justifying the regulation of birth and its continued existence under the Commerce Clause,” he said.
Don’t stop collecting BOI information
Meanwhile, the issue continues in other jurisdictions. Courts in Virginia and Oregon have approved the CTA, while courts in Alabama and Texas have ruled against it. While some had pinned their hopes on Congress’ continuing resolution to keep the federal government funded, the final version that passed did not allow for a delay in enforcement.
The American Institute of CPAs continues to advise members that “those assisting clients in filing BOI reports at a minimum continue to gather required information from their clients and be prepared to file the BOI report if the order is lifted.”
Mark Limardo, a partner in the tax department at the New York law firm Herrick, agreed. “The filing itself is quite light,” he said. “The actual work leads to determining whether an entity is exempt and needs to file at all. It can get quite complicated to determine if they have an exemption. The law is still evolving on how exemptions will apply. And once you get past the exemptions, you have to figure out organizational documents and who the 25% shareholders are. If a company is 75% owned by another company, you have to figure out who those shareholders are, and that can be a problem, you have to do whatever you have to do. So you can press a button in the short term, but on on the other hand, you may be spending a lot of money and time on something that may never come into effect.”
“However the issue is decided, it would have significant implications for Congress’s ability to regulate under the Commerce Clause, which has generally been interpreted as a type of economic activity,” Li concluded.