Blake Oliver: 00:30

So I've got this, long list of stories that I've brought that I can't wait to talk about with you. And the first one just broke on Friday. Kelly Phillips Erb wrote a story on Forbes and the headline is Federal Court Rules New Company Reporting Law is unconstitutional and I feel like that, that title, that headline doesn't quite do it justice because the thing we've all been talking about for what feels like months now is this beneficial owner ship information reporting with FinCEN, and that is all in question here. Right, Roger?

Roger Harris: 01:05

Yeah. And and, you know, there's still, in my mind, a a lot of misunderstanding and lack of knowledge about the whole thing in the first place. And you might just skip over that headline because you didn't even know that we have beneficial ownership reporting to do it, particularly if you're a small business owner, maybe more than a practitioner. But yeah. I got a call today from accounting today, and they said, what's your first comment?

Roger Harris: 01:28

And I said, well, something that was confusing to begin with and people were wrestling with just got more confusing because now we have a court. I think it was a court in Alabama Mhmm. That just said it's unconstitutional. So I'm sure a lot of people are celebrating, and they're thinking, wow. It's over.

Roger Harris: 01:48

I don't have to deal with it. But as you know, Blake, it's never over till it's over.

Blake Oliver: 01:53

No. And and this decision is very different than, like, what you might expect, at least what I expected. It is a district court in Alabama, and this court is the the judge in this court, Lyles c Burke, ruled that the Corporate Transparency Act, which created this whole FinCEN reporting requirement, is unconstitutional. It exceeds the Constitution's limits on legislative branch and, lacks a sufficient connection to any enumerated power to be a necessary or proper means of achieving congress's policy goals. And he found that the CTA is unconstitutional because it doesn't regulate commerce on its face, contain a jurisdictional hook, or serve as an essential part of a comprehensive regulatory scheme thus falling outside congress's power to regulate non commercial intrastate activity.

Blake Oliver: 02:50

And there were a whole bunch of other arguments in this case as to why this thing is unconstitutional, but the judge decided to just decide the case on the first matter whether or not Congress has the authority under the Commerce Clause to do this. And, the other really interesting thing about it is that it's limited to just the plaintiff at this point. Like, the judge didn't say that that, like, nobody has to follow this requirement. He just said that the NSBU, which is the National Small Business United Group and their plaintiff Isaac Winkles, they're the only ones who don't have to, report. And that's Right.

Blake Oliver: 03:33

Like 63,000, you know, members or something like that. So it's very interesting. Like, I guess my my first question to you is, you know, what do you think of this decision? And then maybe we could go into, like, what does this mean for us and our clients?

Roger Harris: 03:49

Yeah. As far as well, I'm not a lawyer. So I'm and certainly not a constitutional lawyer. So I don't know the merits of the case from a legal standpoint. Obviously, for a judge to to come up a ruling like this, there had to be something that concerned him or her.

Roger Harris: 04:10

Mhmm. I think you can count on an appeal. So this isn't the last thing that we'll hear about it. The question is now does this encourage other people to to issue or have lawsuits in other courts in other parts of the country? Because it was limited, though it it's impractical to say, well, we'll exclude this small group of small businesses, and everybody else has to do it.

Roger Harris: 04:34

So it it's gonna eventually settle out to everybody or or nobody. But it's just it's just throwing the whole thing into to turmoil.

Blake Oliver: 04:43

So I'm here in Arizona, and so for me, this doesn't actually change anything with my businesses because the decision was limited to the plaintiffs in Alabama or or actually not the plaintiffs in Alabama. This group, if you were a member The

Roger Harris: 04:57

member of those groups.

Blake Oliver: 04:58

Of the NSBU or this one person, Isaac Winkles. So that's interesting. Right? Like, treasury could just move forward and say, alright, fine. NSBU, you don't have to report, but everybody else does.

Blake Oliver: 05:10

That would be a very funny situation.

Roger Harris: 05:13

Yeah. Then I think everybody else will go to court with the same argument. And then they'll say, but you can't just let them you know, if it works for them, it's gotta work for me. So yeah. And I don't know.

Roger Harris: 05:23

I read it, and it, you know, it sounded like it was the plaintiff. Then it sounded like the plaintiff was the organization. So it's every member no matter where they are. So from a potentially from a position of a firm who's gonna offer this service, I guess you gotta ask everybody that walks in. Are you a member of this?

Roger Harris: 05:39

Probably great for membership for the organization. I wonder if you join after the ruling if you're exempt or if you had to join before the ruling.

Blake Oliver: 05:47

I was listening to Ed Zollars on his show, and he was saying it's not clear. Right? Maybe that could be the case because in other situations, that has happened where if you join after the fact, you now are part of the group and it counts. So that'd be funny if if, you know, the NSBU just decided to offer membership, you know, maybe get a discounted membership, in order to be part of this. But

Roger Harris: 06:08

if they're any good at marketing, that's what they're doing right now. They're coming up with their marketing campaign for new members.

Blake Oliver: 06:13

The thing that is, you know, interesting to me about the decision and, you know, I'm I'm just an armchair constitutional lawyer here, Roger, is that, you know, I mean, I always have I did learn in my civics class about how, you know, the all the powers are not explicitly given to congress, the federal government are reserved for the states. Right. And and, you know, that's why we have this interesting regime where corporations are set up at the state level, not at the federal level. The federal government can only get involved if a corporation in a state is somehow crossing state lines. Right?

Blake Oliver: 06:52

Doing business

Roger Harris: 06:54

The interstate company.

Blake Oliver: 06:55

Interstate. Right? Interstate in between states. And so I I when this original rule came out or this whole reporting requirement came out with FinCEN, I thought to myself, I thought this is odd that the federal government can require my LLC in Arizona to give them information when perhaps my LLC in Arizona has never done any interstate business or commerce. Right?

Blake Oliver: 07:23

Yeah. Like it doesn't if if I just do business here in Scottsdale where I live and I never touch any other state or anyone in any other state and I I don't have online activities, why should the feds get my beneficial ownership reporting information.

Roger Harris: 07:40

Be able to regulate. Yeah. I mean, they've tried to and they've been fairly successful in in stretching interstate commerce to cover a lot of things that we wouldn't normally think we're dealing in other states. I know remember one of the first things they did that caught a lot of people by surprise when it, was if you took a credit card, then your company that monitored the credit card was somewhere else. So even though you weren't in any other state, didn't in your mind do business, and you were in interstate commerce because of taking credit cards.

Roger Harris: 08:11

So they they find very good ways to make us all be dealing with interstate commerce even though, as you said, we're not. So, I mean, yeah, the there's so many legal questions in it, and it comes at a time when we were all still trying to figure out what role, if any, in in our audience, accounting firms could play in helping their clients even do this service. I've had a lot of discussions with people on Capitol Hill. I tell you this. This is one of the most frustrating things I've ever had to deal with because FinCEN's dealing with a group of businesses that they haven't typically dealt with, which is this small end, 20 or 3 employees as the law, you know, states, under 5,000,000 in revenue.

Roger Harris: 08:54

These are businesses that are typically exempted from things like this. But instead, they're the target. And I don't think FinCEN fully understands how that that group of businesses operates and where they go and where they get information. I mean, I had a congressional staffer tell me the other day, one of the big hang ups in the fence end is this idea that if your driver's license changes, you move, you get married, get divorced, whatever. You got 30 days to update your fence end report.

Roger Harris: 09:26

And I said, that's just not practical.

Blake Oliver: 09:28

Who's gonna remember to do that?

Roger Harris: 09:31

Well, particularly when it expires 7 years from now. And, you know, and I was told, well, this isn't Waffle was told 2 things. 1, I was told by a staffer, well, people have to take their credit card time they go to the bank. I went, what bank do you bank with? I mean, no.

Roger Harris: 09:47

They don't. I mean, not the credit card. They're driver's license. So they're used I said, no. They're not.

Roger Harris: 09:51

They're not taking the driver's license to the bank every time they go. Then I was told by a staffer at Fence Inn, well, people just gonna have to learn to adjust. Good luck

Blake Oliver: 10:01

good luck with that.

Roger Harris: 10:02

You know, this ain't gonna work if those are the if those are the mindsets that you had to come up with this. And then that's your attitude to how this is gonna work because it's just not gonna work that way.

Blake Oliver: 10:13

Mhmm. So, I mean, we we all know compliance is gonna be a disaster. Right? There will be

Roger Harris: 10:20

Oh, yeah.

Blake Oliver: 10:20

Some who comply and there will be a lot who don't. And then the penalties are extreme for this group. Yeah. Right? We've I've never seen penalties this extreme other than like the foreign reporting requirements, for small businesses.

Blake Oliver: 10:35

And so a lot of people are getting really pissed off and small business owners are very politically active. So Yeah. You know, I

Roger Harris: 10:43

We're about to get more, I think.

Blake Oliver: 10:44

Right. So well, okay. To go back to this actual situation, what's gonna happen next? There's gonna be an appeal. That's gonna take time.

Blake Oliver: 10:53

Right?

Roger Harris: 10:53

Right.

Blake Oliver: 10:54

So there's a question as to whether this will even get resolved by the time the deadline hits, which is the end of this year for entities formed, last last year

Roger Harris: 11:06

or before that. Yeah. But for people formed now, they're in a 90 day clock.

Blake Oliver: 11:10

Right.

Roger Harris: 11:10

There's no way this is gonna get resolved in 90 days.

Blake Oliver: 11:14

So is the best practice then to simply suck it up and file and and just do it because it's better than, you know, getting a fine later or being found noncompliant even if the law eventually is unconstitutional or changed somehow.

Roger Harris: 11:33

Or changed. I know that's the that's the problem we face right now. A lot of us are take for for businesses that were in business before the start of this year, the biggest advantage that we've had is we had time. We had till December 31st. So most of us have been advising our business systems.

Roger Harris: 11:49

Let's just wait. Let's hope that we get some no. None of us anticipated this. Right. But that that in our discussions with Finsen and others that we could get some tweaks, some modifications.

Roger Harris: 12:01

You know, like a clarification, you know, the as you mentioned, the penalties are outlandish. They're $500 a day up to $10,000 chance to be criminal. And when you raise that jail for not filing a form. Forget that you're not money laundering, which is the intent of this. Yeah.

Roger Harris: 12:17

You know, you could be in jail next to a murderer because you didn't file a form. But, you know, they say, well, we're not after the honest people. We're just, well, when does someone's neglect become willful?

Blake Oliver: 12:29

Well, and You know, who are the Just give me

Roger Harris: 12:31

the names.

Blake Oliver: 12:32

Are the money launderers really gonna file these forms?

Roger Harris: 12:34

Of course. Right?

Blake Oliver: 12:36

So they can have a database of honest people, you know, that they're prospecting.

Roger Harris: 12:41

That's when you talk to them and you say, this just isn't gonna work in the real world because it yeah. I can identify fairly straightforwardly if someone owns 25% or more of a company, which is one of the requirements. But then there's this discussion about they have substantial control over certain activities. So if someone comes in my office and they go, well, I'm the 100% owner, and I ask them, well, is there anybody else that maybe could borrow money or fire you or something like that? If that somebody else is a money launderer, they're not gonna tell me that.

Roger Harris: 13:15

Right. You know? Right. So what is my responsibility? How far do I have to go to ask so that you don't come after me when you find out that Juan Guzman, whatever the drug lord from Mexico is, is, you know, running the business.

Roger Harris: 13:30

You know? And you won't tell me that. You just tell me, don't worry. I'm not after

Blake Oliver: 13:42

Well, let's hope it gets resolved sooner rather than later. The easy fix would be for congress to change the law so that it doesn't apply to every LLC or every business entity, but only those that do interstate commerce. The judge said in his decision that that would have been a good fix, so maybe they'll do that.

Roger Harris: 14:01

Yeah. And there's some other tweaks. I I think I get the 30 day clock for major changes. Like, if you bring in a new partner, that's probably gonna alert you that something changed that we need to think about. Yeah.

Roger Harris: 14:14

So if you wanna have 30 day change periods, make it for major things, and then take the something like an address change or a document change on a piece of it. Make that an annual change that would be part of your normal filing. You know, you can tweak some things to to relieve some of the pressure that we feel. But congress and as you said, the judge gave congress a blueprint to how to fix it.

Blake Oliver: 14:38

I don't I don't understand why they have this 30 day requirement anyway. Why why isn't annual enough to start? Because

Roger Harris: 14:44

here again, it's the belief that somehow filing all these forms, we're gonna catch all the money launderers. So when you ask that question, they say, well, a lot can happen you know, if you don't make them well, so a money launderer is gonna say, oh, by the way, I got a new driver's license. So, you know, come on. Think about it in the real world. As you said, we're gonna have a lot of forms filed by a lot of honest people.

Roger Harris: 15:08

Maybe what they're trying to do is then trap you because you didn't disclose somebody. So, like, I I don't know. Yeah. Someone told me FinCents' total employment is 342 people.

Blake Oliver: 15:19

That's a lot of people too. I mean, it feels like it.

Roger Harris: 15:23

Not to administer a form that impacts, like, 20,000,000 businesses. I mean, IRS

Blake Oliver: 15:28

is like the the same with the SBA. Right? Like, the SBA had to do all this work during COVID, and they only had a few hundred people. Never worked. Yeah.

Roger Harris: 15:35

How do you enforce it? I mean, you don't have auditors like the IRS does. IRS has more auditors in one city than you've got total employees because that includes the janitors, the secretaries, everybody.

Blake Oliver: 15:45

It's a really good question, Roger. How do you enforce it when you don't know what you don't know? Right? So if somebody doesn't file, how how will the federal government ever know that that entity even exists?

Roger Harris: 15:55

Well, and if they do file and leave off the money launderer, how would the if I can't find out, how are you gonna find out?

Blake Oliver: 16:02

Right.

Roger Harris: 16:02

Yeah. I mean, how are you gonna for these, again, these things that aren't necessarily ownership. Yes. If I register my company and I tell you that Blake Oliver owns a 100% of a company, then you know that. But if you don't know

Blake Oliver: 16:15

point. This is a really good point. Like, the money launderer, the one that you want to know about is never on the business filings. So you think that the business owner of record is really going to rat out that person? No.

Blake Oliver: 16:32

No chance.

Roger Harris: 16:32

Not not for long. Not from what little I know about the kind of people who launder money. They're probably not real happy if you rat them out. So

Blake Oliver: 16:39

This is this is this is getting I feel after this conversation, Roger, I feel like this is more ridiculous than ever. And I feel like, before I get outraged, we should probably move on to other topics.