Many small business owners – including one-person LLCs – were surprised to learn recently that a newly-passed law, the Corporate Transparency Act, required them to file a report with the U.S. Financial Crimes Enforcement Network by the end of 2024.
Even more shocking were the consequences of not doing so. Under the law, owners could be fined thousands of dollars and face up to two years in prison.
Congress passed the law to give federal authorities the tools to crack down on terrorist activities and money laundering. But last week a federal court in Texas issued a temporary injunction, blocking enforcement of the law which the court said was probably unconstitutional.
In response, the Financial Crimes Enforcement Network said the filing of the form, known as the Beneficial Ownership Information report, is “voluntary” while the case is waiting to be heard.
“The Corporate Transparency Act plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering,” the agency said on its website. “The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.”
Opposition
But Texas Attorney General Ken Paxton, who challenged the law, says the Constitution does not give Congress the power to unilaterally regulate the approximately 32.6 million organizations that have been granted formal corporate status by the states.
“The so-called ‘Corporate Transparency Act’ was an unconstitutional attempt by the federal government to undermine States’ authority and crush small businesses under regulations, fines, and threats,” Paxton said after the injunction was granted.
“I filed an amicus brief supporting Texas small business owners, and it’s a major victory for American entrepreneurs that the nationwide injunction will prevent this law from taking effect.”
A court will rule on the constitutionality of the law in 2025. In the meantime, business owners who would like to “voluntarily” file the form can do so here.