The Corporate Transparency Act (CTA) has been challenged in several lawsuits across the United States, including here in Michigan by us at the Small Business Association of Michigan. Recently, a federal district court in Texas issued a nationwide injunction against the CTA. That means small businesses need not comply with this law at the moment, but the federal government is appealing that injunction to the 5th circuit court of appeals so things could change quickly.
We are moving forward on multiple fronts. In the short-term, we are hopeful that this injunction will be upheld by the Court of Appeals. Since the first filing deadline for most small businesses is December 31, 2024 under this law, reversing that injunction now would be very problematic. We have filed an amicus brief in the 5th circuit court of appeals, supporting the injunction.
However, long-term we are concerned that the basis under which the Texas case was decided will not be a winning argument. So we expect that our case will be critical down the stretch.
SBAM’s Lawsuit
The SBAM lawsuit just recently had oral arguments in our case and we are feeling pretty good about where things stand. Though it’s worth noting that predicting judicial decisions is tricky business.
Our case centers around several arguments, but it’s the 4th amendment argument that we are most confident in. As a reminder, the fourth amendment provides Americans against illegal search and seizure. For law enforcement to conduct a search in connection with a criminal investigation, they must have probable cause. The CTA requires most small businesses to report sensitive personal information to the Financial Crimes Enforcement Network (part of the IRS) just in case they ever want to criminally investigate. We believe that the CTA is a search without any probable cause.
Our recent oral arguments went very well. Judge Jonker noted that the CTA is an “incredibly burdensome law” that imposes “massive costs on small businesses.” He also seemed to imply that the CTA is designed to get around traditional Fourth Amendment protections, such as having to get a subpoena. We were also pleased that he focused on the judgment calls that businesses have to make, particularly in determining who has “substantial control.” And he noted that actual money launderers and terrorists aren’t going to comply with the statute, anyway.
There’s not way to predict the final outcome of this case, but I can promise you that we will see this through.
By Brian Calley, SBAM President & CEO