By Petr Marek
This week, the Treasury Department announced a surprise reprieve for more than 32 million U.S. small businesses from the Corporate Transparency Act. The act, which was just weeks away from being implemented nationwide, would have saddled small businesses operating in the United States with thousands in fees (and even threatened jail time in certain instances) if businesses did not register their ownership information with the federal government. In one of his first acts as Treasury secretary, Scott Bessent argued that these penalties were too draconian, calling the enforcement embargo a “victory for common sense.”
However, even as the new administration’s rapid flurry of legislative changes practically guarantees that Bessent’s announcement will soon disappear from the public’s radar, the CTA remains legal and on the books. Until the law itself is repealed by Congress, enforcement could be reinstated at a moment’s notice. Thus, even as small businesses cheer this stopgap measure, they must simultaneously advocate for immediate congressional action to repeal—or at the very least, fundamentally reform—the CTA.
The arduous enforcement mechanisms of the CTA
First enacted in 2021, the CTA was never intended to negatively impact legitimate small businesses, but rather to help combat rampant money laundering and tax fraud by creating a federal database of business ownership information. However, the bill’s enforcement strategy had the potential to severely penalize innocent small businesses, if not for the Treasury’s intervention. Prior to the announcement, small businesses would have been required to register with the Financial Crimes Enforcement Network (FinCEN), with penalties for non-registration ranging from a $591 fine (per day) to jail time and a $10,000 fine.
Curiously, the announcement from Bessent is just the latest twist in an ongoing saga that has spanned nearly half a decade in courtrooms from coast to coast. However, despite numerous court cases and an executive branch intervention, the businesses subject to the CTA are still in limbo. If the enforcement embargo is ever lifted, either by a court-ordered mandate or a more sympathetic administration, thousands of dollars in fines could pile up quickly for non-compliant small businesses. In this uncertain economic climate, these judgments could force businesses to close entirely.
The courts have delayed (not derailed) the CTA
In January, the Supreme Court delivered a shock judgment in favor of the CTA, a ruling that was later affirmed by a federal judge in Texas. The two rulings left the CTA (with its enforcement penalties within) intact and enforceable across the nation. Then, just weeks later, the pendulum swung back, with a federal district judge in Michigan declaring the law unconstitutional once again, nearly at the same time as the Treasury Department’s announcement.
However, even with the current administration and judiciary seemingly aligned, supporters of the CTA still have a Supreme Court ruling in their favor. Just a month ago, the high court weighed the country’s interests in combatting financial crimes against the bill’s potential to unfairly punish innocent small businesses, and ultimately decided the CTA was on firm enough legal ground to proceed. This means the new ruling, and the Treasury Department’s embargo, could conceivably both soon be overturned in court. That’s why, as Congress must soon realize, the fate of the CTA should not be left to the judiciary to decide.
Congress must act to repeal the CTA
For nearly five years, the fate of the CTA has been left for a different branch of government to resolve than the one in which it began. As the profound uncertainty of the past month attests, it is past time for Congress to re-examine this legislation (which it passed in a markedly different political era). Years of legal challenges have raised legitimate concerns about the law’s impacts on small businesses, some of which could be forced out of business if subjected to its severe penalties for non-compliance. Rather than forcing innocent small businesses to endure more uncertainty in the name of financial transparency, legislators should seek to reform or repeal the CTA in favor of a more pro-business approach.
The Corporate Transparency Act is a well-intentioned but ultimately misguided law that threatens onerous penalties for opaque infractions. Instead of looking elsewhere for guidance, only Congress is in a position to protect small businesses long-term that are struggling to survive amidst an uncertain economy.
ABOUT THE AUTHOR:
Petr Marek is the founder and CEO of Invoice Home, an invoice template platform designed for small businesses, freelancers, and entrepreneurs. Invoice Home currently has more than 10 million users worldwide.
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