Feds Demand Court Restore Draconian Reporting Law

The clock is ticking for the Fifth Circuit Court of Appeals, which must decide the near-term fate of the Corporate Transparency Act (CTA)—a federal surveillance law that requires more than 32 million small businesses and many millions more managers and owners to report private information to the federal government—as its January 1 deadline looms. CIR challenged the law, and on December 3, U.S. District Judge Amos Mazzant ordered a preliminary nationwide injunction, finding the law is “likely unconstitutional,” and placing it on hold during litigation. The federal government has appealed.

Judge Mazzant’s meticulous 80-page opinion explains that the CTA likely exceeds Congress’ powers under the Commerce Clause, which authorizes the Congress to regulate interstate commercial activity. Judge Mazzant concluded that the CTA does not regulate commercial activity at all. Instead, it regulates the mere existence of an organization that may or may not engage in commerce. The government similarly conflated mere existence with commerce when defending Obamacare’s individual insurance mandate more than ten years ago, claiming that the mere existence of uninsured Americans affects commerce. The Supreme Court considered and roundly rejected that argument (even if a different majority of the Court  upheld that provision on other grounds).

Immediately following the District Court’s decision, accounting and law firms around the country promptly informed their clients that they were no longer under an obligation to comply with the CTA’s onerous and invasive regulatory burdens. And the U.S. Treasury Department confirmed on its official website that the filing deadline had been suspended pending further court rulings, approximately 24 days before it was set to go into effect.

Feds File Appeal

But after eight days of inaction by the federal government, the U.S. Department of Justice filed an appeal, asking the Fifth Circuit to halt the injunction, and seeking an emergency ruling lifting it so that the January 1 deadline could go back into effect. In its latest filing on December 13, the government asked the appellate court to rule by December 27 to reimpose the January 1 deadline, which would give tens of millions of people one business day to comply with the complex filing. The government’s about-face has created chaos for millions of businesses around the country who currently have no legal obligation to file reports but are unsure whether that will change in the coming weeks. With the original deadline looming, the Fifth Circuit is deliberating the case on an expedited basis.

As CIR’s Caleb Kruckenberg and  Andrew M. Grossman explain in a Wall Street Journal op-ed, compliance with the CTA has already been mired in confusion and chaos, but that chaos would be grossly exacerbated by permitting the CTA to take effect. Millions of small businesses nationwide have already learned about the injunction and plan not to file reports. If the Fifth Circuit reverses the decision, many businesses may not even learn about the order in time to comply.

The government’s appeal is especially egregious because it can give no good reason why the January 1 roll-out date is important. The Corporate Transparency Act was enacted in 2021, prior to that, the government had never exercised comparable power. Yet the government claims that delaying implementation will cause irreparable harm. The only harms the government can point to are that it is harmful to thwart Congress’ will and that FinCEN has already sunk large amounts of money into its largely unsuccessful public awareness campaign regarding the January 1 deadline.

The government filed its appellate brief on December 13, CIR’s response is due December 17 and the government’s reply on December 19.