The CTA ruling: implications for beneficial ownership reporting in the wake of legal challenges

The U.S. District Court for the Northern District of Alabama recently ruled that the Corporate Transparency Act exceeded Congress’s legislative powers listed in the Constitution. Learn about the ruling and how this might affect the reporting requirements for your business.

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The CTA ruling: implications for beneficial ownership reporting in the wake of legal challenges

Article | March 28, 2024 | Authored by KDP LLP

 

In 2021, the Corporate Transparency Act (CTA) was enacted to combat financial crimes by requiring U.S. and foreign entities to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This measure aimed to enhance law enforcement’s ability to investigate money laundering activities. 

In November 2022, the National Small Business Association (NSBA) and Isaac Winkles filed a lawsuit in the U.S. District Court for the Northern District of Alabama, claiming that the CTA unfairly burdened small businesses. On March 1, 2024, the court ruled in favor of the plaintiffs, declaring the CTA unconstitutional. The decision has introduced confusion and uncertainty among many business owners.

In this article, we’ll briefly discuss the court’s ruling and what it means for business owners, including whether they need to comply with beneficial ownership reporting requirements going forward. 

The court’s ruling

In the court’s decision, District Judge Burke determined that the CTA exceeded Congress’s legislative powers listed in the Constitution. The ruling highlighted that the authorities cited by the government, such as control over foreign affairs, national security, and interstate commerce, did not justify the CTA’s requirements. 

The court also prohibited enforcement of CTA provisions against the plaintiffs specifically, including certain members of the NSBA. While the decision calls the CTA into question and exempts some from compliance, it is very limited in scope.

Implications for business owners

Judge Burke issued an order prohibiting FinCEN from enforcing the CTA against the plaintiffs, which included members of the National Small Business Association (NSBA). This means a small number of beneficial owners who were members of the NSBA as of March 1, 2024, may be affected. 

However, the vast majority of beneficial owners of U.S. businesses are still under the mandate to file beneficial ownership information (BOI) with FinCEN. 

Additionally, a number of states have passed legislation requiring ownership reporting similar to the CTA. This ruling does not affect those state laws, so many may still be required to comply with both state and federal reporting obligations. 

The Department of Justice and FinCEN quickly filed a notice of appeal after the Alabama court ruling, so the CTA debate will continue. FinCEN has clarified it will continue to enforce the CTA amidst ongoing litigation. The government may also request a stay of the court’s ruling pending the outcome of the appeal, meaning the CTA would still be enforceable against the plaintiffs until the United States Court of Appeals for the Eleventh Circuit renders a decision. 

In sum, the long-term compliance environment remains uncertain. The Northern District of Alabama is one of 94 federal district courts and is subject to appeal in the 11th Circuit, which is one of thirteen federal appellate courts. The progression of this legal challenge and the potential involvement of other federal circuits could extend the period of uncertainty, and a final resolution could be years away. 

The Act’s Broader Impact and Future

The recent court ruling could signal changes ahead. While the current decision only affects a small fraction of businesses, other business owners should keep an eye out for future changes. Developments in other courts or legislative amendments could change compliance obligations. 

Given the current legal ambiguity, businesses, especially those newly formed or nearing reporting deadlines, must stay informed about any changes that could impact their reporting obligations. 

For entities established after January 1, 2024, the CTA mandates that BOI be reported to FinCEN within 90 days of formation unless covered by an exemption. Entities in operation on or before December 31, 2023, face a deadline of January 1, 2025, for submitting their beneficial ownership filings. Given the number of entities potentially affected, most businesses should proactively prepare for these submissions well ahead of the deadline. 

Regardless of the ongoing legal challenges, the safest course for businesses is to prepare as though they will need to comply. Collecting beneficial ownership information in advance mitigates the risk of non-compliance, which can carry significant penalties. 

If your business is not required to report, the effort you put into gathering this information is not wasted but rather a prudent measure in risk management. The key takeaway for businesses is to remain adaptable, consult with experts, and prepare diligently for compliance.

Importance of Professional Guidance

If you have any questions or concerns about CTA compliance, it’s wise to speak with legal and financial advisors. Professionals can offer tailored advice, ensuring you understand your obligations, identify applicable exemptions, and remain compliant. For more information, please contact our office. 

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 313-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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KDP is a team of CPAs and business advisors with a local focus, but a national reach. We have offices in Medford, Oregon and Boise, Idaho, as well as satellite offices throughout the United States. We have been providing professional tax, accounting, audit, and management advisory services since 1976, serving clients nationwide. Our firm has more than 90 trained professionals on staff dedicated to furnishing high-quality, timely and creative solutions for our clients.

For more information on how KDP LLP can assist you, please call us at:

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(541) 773-6633

Idaho Office:
(208) 373-7890.

Credits and incentives available to retirement plan sponsors

Employers with less than 100 employees who have recently adopted or are considering a retirement plan have a tax savings opportunity.

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Credits and incentives available to retirement plan sponsors

ARTICLE | March 25, 2024 | Authored by RSM US LLP

Executive summary: Credits for retirement plan sponsors

Continued concerns by congressional leaders for employees to attain retirement security have led to legislative changes intended to make it more affordable for certain employers to sponsor a retirement plan. Non-refundable credits were already in place to help employers offset the administrative cost of implementing and maintaining a retirement plan, but the SECURE 2.0 Act of 2022 (SECURE 2.0) enhanced an existing credit and introduced new start-up and military spouse credits to incentivize plan sponsors to maintain plans and make their setup and operation more feasible. SECURE 2.0 also provides plan sponsors the ability to use de minimis financial incentives to entice employees to elect to defer. The IRS provided additional guidance on these credits and financial incentives in Notice 2024-2.


Startup plan tax credits

Small employer pension plan startup cost tax credit

SECURE 2.0 expanded the already available small employer pension plan startup cost tax credit to make implementing a retirement plan more attractive to a small employer. A small employer in this context is an employer with 100 or fewer employees who earned at least $5,000 in the prior tax year. Employees of employers related to the sponsoring employer under the controlled and affiliated service group aggregation rules are considered for this purpose. Historically, small employers could claim a nonrefundable credit for 50% of the cost to set up and administer a retirement plan, up to a maximum of $5,000. Costs paid by the employer, not the plan, are considered for purposes of the credit. The credit has been increased to 100% for employers with 50 or fewer employees earning at least $5,000 in the prior tax year, beginning in 2023. The 50% credit still applies for employers with 51 to 100 employees. Generally, the credit can be claimed for the first three years the plan is in operation. Amounts claimed towards the credit cannot also be deducted as an expense on the employer’s return. The employer can elect whether it takes the credit each year, so if an employer does not claim the credit for a given year, the costs may be deducted. Since the credit is nonrefundable, it is not beneficial for tax-exempt and governmental employers.

Additional credit for employer contributions

Small employers who meet the criteria of the small employer pension plan startup cost tax credit also have the opportunity to receive an additional credit for employer contributions (e.g., profit-sharing or match) made to a new defined contribution plan, for taxable years beginning after Dec. 31, 2022. The credit, which is available for up to five years, is 100% of employer contributions (up to $1,000 per eligible employee) in the year a plan is established and the next, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. For an employer with more than 50 employees in the prior year, the credit is reduced two percentage points for each employee in excess of 50 (i.e., if the employer had 60 employees, the credit would be reduced by 20%). Contributions to employees with more than $100,000 in compensation cannot be taken into account for the credit. Even with the limitations on this credit, it provides a potentially significant tax savings opportunity for small employers.

Auto-enrollment credit

Although not new with SECURE 2.0, another credit to keep in mind is the auto-enrollment credit, which allows a $500 credit for a three-year period, beginning in the year a small employer implements an auto-enrollment provision in their retirement plan. Auto-enrollment is a provision that enrolls eligible employees into a retirement plan at a specific deferral rate, unless the employee elects a different deferral rate or not to defer.

Summary

To conceptualize the credits potentially available, consider a 401(k) plan with an auto-enrollment provision effective in 2022 by an employer with less than 50 employees in every year.

Tax year

Credit for
Startup Costs

Credit for Eligible
Employer Contributions

Credit for
Auto Enrollment

1st Credit Year

2022

50% up to $5,000

n/a

$500

2nd Credit Year

2023

100% up to $5,000

100%

$500

3rd Credit Year

2024

100% up to $5,000

75%

$500

4th Credit Year

2025

n/a

n/a

50%

5th Credit Year

2026

n/a

25%

n/a

Military spouse credit

A new credit, effective for taxable years beginning after Dec. 29, 2022, was born out of concern for military spouses who may not be able to participate in a retirement plan or may not become vested in their employer account within a retirement plan due to the need to frequently relocate. During each of the first three years in which a non-highly compensated military spouse participates in a defined contribution plan, SECURE 2.0 provides a tax credit of $200 for the military spouse’s participation plus an added credit of up to $300 for employer contributions made to the plan on behalf of the military spouse, subject to certain conditions. Conditions that must be met to qualify for the credit are:

  • The military spouse must be allowed to participate in the plan within two months of employment.
  • The military spouse must be immediately eligible for employer contributions at a rate at least as favorable as an employee who is not a military spouse would receive after two years of service.
  • Employer contributions to the military spouse are immediately fully vested.

Small employers should keep in mind that the credit is based on each military spouse’s first three years of plan participation. Since each spouse could have a different three-year period, tracking the credit available for each year will require appropriate administrative measures.

Financial incentives for participants

Employers of all sizes often look for ways to increase the number of employees who elect to defer to a retirement plan. Historically, this has been in the form of targeted communication campaigns and financial literacy education of eligible employees. Beginning in 2023, SECURE 2.0 provided a new tool employers can use to entice employees to elect to defer. A de minimis financial incentive (not paid for with plan assets) can be offered to eligible employees who make a deferral election, provided they do not already have an election to defer on record.

In Notice 2024-2, the IRS noted a financial incentive will be considered de minimis if it does not exceed $250 in value. For example, as noted in the guidance, “if an employer announces on Feb. 1, 2024, that any employee for whom an election to defer under a CODA is not in effect on that date and who, within the next 90 days, makes an election to defer, will receive a $200 gift card, then the gift card is a de minimis financial incentive…”

Unless an exception is provided under the Internal Revenue Code, the financial incentive is considered includable in an employee’s wages and is subject to applicable employment tax withholding and reporting. For example, a gift card is a cash equivalent and considered to be a taxable fringe benefit. Therefore, no exception is available in this example and the value of the gift card is taxable compensation to the employee.

Takeaway

SECURE 2.0 expanded opportunities for employers to establish and operate retirement plans, especially for small employers. There are nuances involved in determining whether the credits are available and how the credit amounts are calculated. For example, specific criteria are applied to determine who is an eligible employer, how compensation is determined for the thresholds discussed, and to which years the credits can apply. RSM US can assist in evaluating credits or financial incentives available to employers sponsoring retirement plans, as well as for consulting on other retirement plan matters.

Stay tuned for other retirement plan topics each month and check out our previous article, Retirement plan audit and contribution considerations.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Christy Fillingame, Lauren Sanchez, Toby Ruda and originally appeared on 2024-03-25.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/business-tax/credits-and-incentives-available-to-retirement-plan-sponsors.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

The price of eggs and the effect on public sentiment

With the economy growing at a healthy rate over the past year, one would think that Americans would be celebrating a boom.

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The price of eggs and the effect on public sentiment

PERSPECTIVE | March 05, 2024 | Authored by RSM US LLP

Inflation is receding and the labor market is as healthy as it has been since the 1950s. Wages are higher in inflation-adjusted terms. Everyone who wants a job either has one or can find one quickly.

And with the economy growing at a healthy rate over the past year, one would think that Americans would be celebrating a boom.

Yet in September, a poll by Sawyer Business School and USA Today found that 70% of Americans believed the economy was getting worse, not better.

Why are consumers so unhappy?

To begin with, it depends on their point of comparison.

If comparing today’s economy to 2019, before the pandemic, the view is bound to be negative. Since 2019, the economy has endured a pandemic, a shutdown in global supply chains, price shocks on the oil and commodity markets, and global turmoil.

But if comparing today’s economy to a year ago, then the view is bound to be positive given the strong labor market, easing inflation and overall growth.

In addition, there is also a sense that consumers, who by most measures are in healthy financial shape, have a dimmer view of the overall economy even though they themselves are doing just fine.

As the saying goes, “It’s a recession for thee, not for me.”

The same disconnect applies to businesses. The fourth-quarter RSM US Middle Market Business Index showed a similar concern for the economy overall, even as executives in the survey had a positive outlook for their own businesses.

The basis for this outlook is the disconnect between what the data shows and what consumers, and businesses, feel. As economists and strategists point to slowing inflation, consumers still feel the sting of higher prices overall. Prices, after all, do not usually decline.

Consider the price of eggs, which has fluctuated wildly over the past two years. Along with a select number of other goods and services, the price of a dozen eggs illustrates why public sentiment is currently sour. But that sour view is likely to improve as supply conditions continue to improve, inflation growth eases and real wages rise.

The price of eggs

The inability of supply to meet demand during the pandemic shutdown was an obvious reason for staples like eggs to increase in price. For instance, from December 2019 to February 2022, the price of a dozen eggs rose from about $1.50 to $2.00, an increase of 30% over 26 months.

But an avian flu took hold in early 2022 and grew into the largest outbreak in American history. What followed was a widespread culling of the national chicken stock, sending the price of eggs even higher. By January 2023, egg prices had more than doubled, to $4.80 a dozen, in less than a year.

In December, another outbreak of avian flu resulted in an 8.9% increase in the price of eggs on a monthly basis, even as the cost of that good declined 23.8% on a year-ago basis.

If using December 2019 as a starting point, the egg component of the consumer price index was up 36% compared to the recent disinflation in that good of roughly 24% from a year earlier.

The grocery store is not the only place the increase in egg prices is being noticed. Many prepared food items, from hamburger rolls to meatballs to brownies, include eggs as an ingredient.

So the rapid increase in the cost of eating at your favorite burger or Italian joint since 2020 is due in part to the increased cost of eggs and other staples—not just higher labor costs.

The good news is that by the middle of 2023, the average price of a dozen eggs had dropped to $2.21 before moving back up to $2.50 in January.

Whether that disinflationary trend continues will depend on whether another outbreak of the bird flu occurs.

Without a severe drop in demand for goods and services caused by a deep recession, one should anticipate further modest disinflation in the goods sector and price stickiness in the service sector because of a tight labor market and rising nominal and real wages.

Overall, price levels are higher than they were before the pandemic. While the worst of inflation is behind us, it will take more time for consumers to change their spending patterns or to better absorb those additional costs as wages move higher in nominal and inflation-adjusted terms.

The pricing dynamics in the following sectors are similar to those of eggs and other food staples, underscoring consumers’ sour sentiment.

Energy

For many Americans, inflation is defined by the gasoline prices they see on their way to work every day.

In November, the price of regular gasoline stood in the $3 a gallon range, down from the high of $5.06 on June 13, 2022. That plunge should be a net plus in consumers’ evaluation of the current economy, but for some it is not.

Why is that?

The average price of gas dropped below $2 a gallon in 2020 because of a plunge in demand associated with the move to work at home and the shutdown of global supply chains.

Inflation might seem like a pressing issue if comparing 2020 gasoline prices to prices today.

But those 2020 gas prices need to be viewed in the context of Trump-era emergency policies and the price shocks that followed.

The price of gasoline between 2015 and 2020 averaged $2.44 per gallon, so November’s price in the $3 range after adjusting for inflation does not seem out of line.

As of mid-February, the national average price of gasoline was in the range of $3.25 a gallon but remained 22% higher than before the pandemic. Gas prices declined at an average rate of 9.7% per year last year.

The cost of diesel fuel, a key part of the supply chain, remains 28% higher than before the pandemic but is falling at a rate of 16% per year.

The price of heating your home with fuel oil remains 24% higher than at the end of 2019 but is falling at a rate of 18% per year. The cost of electricity is 30% higher than 2019 and is increasing by 3.4% per year.

Transportation

Trends in the cost of used cars and trucks are nearly identical to those in the overall cost of transportation commodities, which allows us to use used cars and trucks as a proxy for transportation costs.

The shortage of computer chips during the pandemic delayed the production of new vehicles, which created a surge in demand for used vehicles. As such, the inflation rate for used vehicles peaked at 45% per year in 2021.

Prices of used vehicles remain 31% higher than at the end of 2019 but fell at an average rate of 7.4% per year in 2023.

The shortage of chips also had knock-on effects that included a sell-off of rental vehicles during the pandemic. That resulted in a vehicle shortage once the pandemic ended, which increased the cost of rentals.

Housing

The tight housing market is a constant reminder of how housing preferences changed during the pandemic, and the end of low-for-long interest rates. This is especially true for young people looking to buy their first home.

Using the housing component of the consumer price index, housing costs are 22% higher than before the pandemic and in January continued to increase at a rate of 4.9% per year.

That the rate of growth is decelerating can be attributed in part to the saturation of demand for housing and to the pause in monetary policy tightening. The prospect of lower interest rates gives prospective buyers the incentive to wait out the eventual easing of long-term interest rates.

Mortgage rates appeared to have finally peaked, but there is no guarantee that the market won’t pick up again in the spring. 

Discretionary spending

Electronics: The cost of cellphone services plunged in 2017 and has pretty much flatlined since then. The cost of cell service was falling at an average rate of 2% per year in the fourth quarter of last year. The cost of buying a television has also continued to drop. In fact, TV prices are 2% lower than before the pandemic and by January were falling at a rate of 9.8% per year.

Airline fares: Finally, the price of taking a vacation has returned to earth. Airline tickets are 2% lower than before the pandemic and by January were falling at a rate of 9.3% per year. We can surmise that the decreased cost is because of a leveling off of demand, with revenge travel having run its course, and as fuel prices have eased.

The takeaway

Prices of most goods and services remain higher than before the pandemic.

Despite a thriving economy, the public has not yet adjusted to the price level shock, and that will simply take time.

While inflation continues to recede, higher prices continue to affect household finances, causing the public to evaluate the economy as sour.

We think that by midyear, many if not most Americans will begin to reshape their evaluation of the economy based on low unemployment, rising real wages and falling interest rates as inflation recedes toward our forecast of 2% by the end of the year.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Joe Brusuelas and originally appeared on 2024-03-05.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/economics/the-price-of-eggs.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890