New financial disclosure requirements that would sweep in many medical professionals were temporarily put on hold under an order from a panel of the Fifth Circuit Court of Appeals.
The Biden administration rule required an estimated 33 million small businesses, including some nonprofit entities, to report personally identifying information about their “beneficial ownership or interest” by January 1. Enforcement of the paperwork filing was blocked by the appellate court in an order issued on December 26.
The obligation to file with the Financial Crimes Enforcement Network (FinCEN), a small office in the U.S. Department of the Treasury, carries criminal penalties for violations of up to two years in federal prison and a $10,000 fine. The FinCEN rule was authorized by the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act in 2020, a measure to fight terrorism rather than enforce federal tax law.
The rule would require disclosure of such information as Social Security numbers, birth dates, driver’s license numbers, and the home addresses of corporate officers and other individuals who “substantially” benefit from or control the covered entities. The only entities required to file are those with less than $5 million in annual revenue and fewer than 20 employees.
‘Federal Overreach’
The stay on enforcement of the FinCEN rule resulted from litigation by the Association of American Physicians and Surgeons (AAPS) challenging the constitutionality of the CTA in a federal court in Amarillo, Texas.
U.S. District Court Judge Matthew J. Kacsmaryk issued a preliminary nationwide injunction against enforcement of the FinCEN rule on December 3, 2024, which was immediately appealed to the Fifth Circuit by the U.S. Department of Justice.
The AAPS notes on its website that information in the resulting database could be widely shared by federal agencies.
“This is a vast expansion in federal police power, with its political bias that has worsened,” stated AAPS General Counsel Andrew L. Schlafly, the lead attorney for the plaintiffs, in a press release on December 7. “Fortunately, multiple provisions of the U.S. Constitution stand firmly against this federal overreach.”
State Authority
The federal government has no business taking over activity reserved to the states, says Ron Friedman, a certified public accountant (CPA) and certified tax resolution specialist in Tarrytown, New York who deals with the Internal Revenue Service daily.
“The Corporate Transparency Act is something the states should implement because the formation of corporations is under state jurisdiction,” said Friedman. “This is a massive overreach by the federal government to collect information that is likely collected by the states anyway. Additionally, the notion of creating a mandatory reporting system, in the hopes of catching a few bad actors, is foolish at best. How about enforcing the laws on the books already?”
FinCEN is designed to collect the information for use by other federal agencies, says Bill Eastland, an Arlington, Texas tax accountant. “It’s an office with only 80 employees, so they aren’t going to enforce the law,” said Eastland. “But they are creating a database that could be used by law enforcement agencies, and unlike federal tax law, there is no requirement for probable cause to share the information.”
The rule is redundant, anyway, says Eastland.
“This ownership information is already filed with state corporation offices in most states,” said Eastland.
Caught in the Middle
After the appeals court ruling, the FinCEN website noted covered entities may continue to “voluntarily” file the disclosure forms, but the requirement is confusing to small business owners, says Owen E. Barnett, CPA (the writer’s brother), who has an independent practice in Arlington, Texas.
“Several of my clients have asked me to file the information for them,” said Barnett. “I told them they could do so themselves—it’s just a two-page form on the FinCEN website—but as this is not a tax matter, I would not do it for them, as I could be criminally liable for any errors.”
The law also applies to volunteers, as AnneMarie Schieber, the managing editor of Health Care News, found out in her capacity as a board member of a small homeowner’s association.
“I was surprised to learn I had to fill out one of these forms even though we have explicit bylaws and are governed by state law,” said Schieber. “Upon hearing the penalties for making what might be a tiny filing error and learning my personal information would be shared with any number of federal law enforcement agencies, I wonder whether serving is worth the risk.”
Trump Card?
“The injunction against FinCEN is back in place, apparently at least until oral argument in March,” Schlafly told Health Care News. “It is possible that the Fifth Circuit could issue a permanent injunction then. It is also possible that [President] Trump could suspend enforcement of the rule.”
In response to the Fifth Circuit ruling, the DOJ petitioned the Supreme Court of the United States, arguing the injunction should not be in place while the issues are being considered.
“There may be another round of briefing in SCOTUS now!” said Schlafly.
Before the initial deadline, FinCEN warned the millions of physicians, medical practices, and small business proprietors scrambling to comply of “Fraud Schemes Abusing FinCEN’s Name, Insignia, and Authorities for Financial Gain,” in an alert on its website, underscoring the potential pitfalls of the rule.
Joe Barnett ([email protected]) writes from Arlington, Texas.
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Joe Barnett is a senior editor at The Heartland Institute and a policy advisor on budget and tax issues.
