Simply stated, the Corporate Transparency Act (CTA), part of the National Defense Authorization Act (NDAA) and went live in January, 2024, is a sweeping dragnet of America’s small businesses’ managers’ and owners’ personal private data. If you are key to a small business, this affects you. It bypasses all constitutional constraints to treat these entities and you as a suspected criminal, places massive financial burdens on your business, allows the United States Treasury and their Financial Crimes Enforcement Network (FinCEN) to share your confidential information federally and with foreign governments without a court order, violates Article I section 8 constraints placed on the Federal government, and violates the I, IV, V, VIII, IX, and X amendments. Finally, it is a terrible mechanism for achieving its stated goal of preventing terrorism, money laundering, and international crime as its terms are ill-defined and it doesn’t even address the entities most likely to engage in this activity.
Does CTA Affect You?
CTA affects all state registered entities with some exceptions (established 501c’s, sole proprietorships, financial institutions, etc…) who do not meet the following criteria:
- The organization handles over $5 million dollars annually in gross receipts;
- The organization has more than 20 full-time employees;
- AND the organization has a physical office in the United States.
To clarify, if your organization does not fit all 3 criteria, then it must report. As you can see this doesn’t just apply to businesses engaged in interstate commerce, but includes property holding LLC’s, nonprofits who haven’t obtained 501c status, businesses who only engage in intrastate commerce, social or political clubs, etc…
CTA requires providing the following information on all “Beneficiary Owners” of an affected organization:
- Legal name of the company, any DBA or trade names, principle US address for conducting business, taxpayer identification (EIN, SSN, ITIN).
- Beneficial Owners:
- Name, address, and DOB.
- Unique identifying # and the issuing entity from an acceptable identification document.
- An image of that document (ex: Current Driver’s License, Social Security Card, Passport, Birth Certificate).
Who is a beneficiary owner? This is where the vagueness and ill-defined terms of the CTA present themselves. There are no analogues existing in state or federal law to define this term, only the definition provided by the Act: Individuals who directly or indirectly own or control a company. That means that the FinCEN has a lot of room to determine what that means.
This information is required within 30 days of formation of any new organization, or by the end of 2024 for all existing organizations. Furthermore, any changes to this information by any beneficial owner requires an update within 30 days.
What are the Penalties of Compliance Tardiness or Failure?
If your organization fails or is tardy to comply with CTA regarding you as a beneficial owner, you face the following:
- $500 a day penalty, capping at $10,000.
- Up to 2 years in prison.
How Do You Ensure Proper Compliance with CTA?
This remains unclear. Since many of the terms in the CTA have no analogues and leave their interpretation up to FinCEN, it leaves a lot of business owners in an uncomfortable gray area. It is expected that to safely move forward you may need to hire an attorney to ensure that you are complying properly. In fact, the National Small Business Association (NSBA) has calculated that the average legal cost for an affected business is going to be $8,000 in the first year alone.
The CTA is a Massive Constitutional Violation, Places Grievous Burdens on Entrepreneurs, and Puts Your Privacy at Risk
Beyond the unreasonable financial and regulatory burden this places on America’s lifeblood, small businesses, the CTA completely ignores the Constitutional limitations placed on the Federal government.
1. Unconstitutional Usurpation of the States’ Powers. Article 1 Section 8 of the US Constitution grants Congress the power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” While this clause has been widely abused by the Federal government, it does so again in the case of the CTA. CTA is not targeting “Commerce” exercised on international, interstate, or in Indian affairs. The CTA places demands on entities existing or created within a state regardless of whether or not they end up engaging in “Commerce”.
Further it usurps the established right of the States to regulate entity formation.
2. Unconstitutional Burden on Freedom of Speech and Association. As this applies to organizations whose entire purpose may be social and political in purpose, requiring you to report your personal information and association if you exercise “direct or indirect” control in that organization. You must consider that your leadership will be reported and tracked by FinCEN.
3. Unconstitutional Violation of Privacy. The IV Amendment protects you against unreasonable searches and seizures as well as the right to be secure in your papers and effects. With no evidence or suspicion of a crime, the CTA violates these privacy guarantees under the guise of protecting against criminal activity, a IX Amendment violation. By forcing you to report, lacking any due process, your V Amendment right against self-incrimination is violated.
4. Unconstitutional Violation of Due Process. The V Amendment also guarantees that you cannot be deprived of liberty or property without due process of law. With no suspicion, evidence, and no court order, FinCen is allowed to obtain this personal information and share it with Federal agencies and Foreign governments (including China) so long as they claim to be acting for a criminal investigative purpose. This compounded violation of your IV and V amendment rights puts you in greater jeopardy for identity theft and misuse by unaccountable foreign entities.
The vagueness of the CTA’s terminology allows for loose interpretation and misuse by federal and international agencies.
5. Excessive Punishment. The VIII Amendment protects against excessive fines and cruel and unusual punishment. $10,000 and 2 years imprisonment for failure to update your personal address information within 30 days is clearly excessive, cruel, and unusual.
6. Radical Federal Government Overreach. The IX and X Amendments protect you against the powers granted in the Constitution from being construed to deny or disparage your rights and prohibit the Federal government from granting itself authority not explicitly granted to it in the Constitution. Clearly the CTA is attempting to construe regulation of “Commerce” as a reason to deprive you of your rights and grant Dept. of Treasury regulatory authority never granted to the Federal government.
7. Burdensome, Vague, Complex, and Costly Compliance. Due to its vague terms; framework for reporting, updating, access, and record keeping; the CTA creates an unreasonable difficult process to comply with. This places costly and unnecessary legal fees on you and your affected entities.
We Are Fighting Back to Protect Your Rights
All is not lost. On March 1st of this year, the U.S. District Court Northern District of Alabama Northeastern Division, District Judge Liles C. Burke granted a summary judgment in favor of NSBA who sued against the Treasury Dept. regarding the CTA. He declared the CTA unconstitutional and granted relief to all of NSBA’s members.
While this will inevitably be appealed to a higher court, this means that currently the plaintiffs in this suit do not need to comply with the CTA. Unfortunately for the rest of us who own, manage, or plan to run an organization we will have to comply this year. Unless we are granted a similar judgment.
To this end the Homestead Liberation League is filing a joint suit with other plaintiffs against the Dept. of Treasury to combat the CTA. We are seeking a general relief and an additional declaration of the CTA’s unconstitutional status in a Utah District Court. Our lawsuit is critical to this fight and is your opportunity to protect yourself and your organization.
1. A victory could grant a general relief to new and existing businesses en masse.
2. A victory in a different district will build legal momentum for both cases.
3. We will be able to address additional arguments not covered in the original case.
4. Any decision will help move the fight against the CTA forward as it will escalate the fight in the appeals process.
Due to the precedent established in the aforementioned case, the caliber of our legal team, and the current tenor of The Supreme Court we have the highest prospects of ultimate victory on this matter, but building momentum is critical.
We Need Your Support.
Fighting in the federal courts is an expensive process, the Federal government knows this and uses it as a way to financially wear down those who would oppose government overreach. We are committed to defending your rights and will see this case through to the end. We will protect the rights of independent producers!
Please consider a fully tax deductible donation to the Homestead Liberation League (501c3) to help us continue to advocate for the rights of independent producers and businesses.
If you are an affected party by the CTA please contact us to learn how you can join and benefit from this fight.
Article by Phillip Taylor
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