Lead plaintiff, Texas Top Cop Shop's president Steve Schneider awards police in front of his store

Federal Law Threatens Criminal Penalties for Small Businesses that Do Not Report Confidential Information

The Center for Individual Rights filed a federal lawsuit in the Eastern District of Texas challenging the Corporate Transparency Act (CTA), a sweeping federal law that requires tens of millions of small businesses and nonprofits nationwide to file reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), disclosing confidential information about any person who owns or “exercises substantial control” over the entity.

The CTA presumptively applies to every pre-existing or newly formed “corporation, limited liability company, or other similar entity that is” “created by the filing of a document with a secretary of state.” By the government’s count, the law reaches 32.6 million existing businesses and 5 million new businesses. Any entity that fails to submit a report by December 31, 2024 is subject to criminal penalties and a $500 per day fine for every day that the report is late, incomplete, or inaccurate.

CTA was allegedly enacted to prevent financial crimes, but a series of exemptions written into the statute make it functionally toothless for that purpose. Publicly traded corporations, closely held private corporations, banks and money services businesses, among other groups, are exempt from compliance. These exempt businesses are the most likely to be involved in the kinds of financial crimes that the CTA was ostensibly enacted to prevent.

CIR represents Texas Top Cop Shop, a family business in Texas that sells equipment to first-responders, Data Comm for Business, a Texas-based IT firm, Mustardseed Livestock, a small dairy farm in Wyoming, and the Libertarian Party of Mississippi. The suit is also joined by the National Federation of Independent Business, which advocates for nearly 300,000 small business members nationwide.