New Rule For Small Businesses To Report Ownership

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The National Small Business Association is challenging a new rule that would force millions of business owners to disclose their ownership to the Treasury Department’s Financial Crimes Enforcement Network.

The lawsuit, filed in U.S. District Court for the Northern District of Alabama, alleges the Corporate Transparency Act, which mandates small-business owners disclose beneficial ownership information, infringes on state powers over the formation of entities and exceeds Congress’ power to regulate commerce. The law was signed in 2020.

“The CTA is a poorly thought out and heavy-handed federal mandate that will be a bureaucratic nightmare for small-business owners,” said NSBA President and CEO Todd McCracken. “If implemented, small businesses will be forced to spend millions of hours and billions of dollars on paperwork instead of creating jobs and helping grow our economy.”

At issue is a rule finalized by the Treasury Department that requires small-business owners and other entities to report beneficial ownership and control information to the Financial Crimes Enforcement Network as part of an effort to cut down on fraud, money laundering and the funding of terrorism that could run through anonymous business entities. FinCEN even cited in its rule recent cases of Paycheck Protection Program fraud as examples of how the rule could cut down on illegal activity.

Exemptions to the rule include larger operating companies with 20 or more full-time employees and more than $5 million in revenue and a physical operating presence in the United States, along with companies that report to the SEC, banks, registered broker-dealers, insurance companies and essentially any other business that already reports ownership information to the government.

FinCEN said it expects the rule to extend beyond LLCs to limited liability partnerships, business trusts and other entities.

The rule will go into effect on Jan. 1, 2024 and any nonexempt company formed after that will have 30 days to file their report with FinCEN. Companies formed before Jan. 1, 2024, will have a year to file their initial reports.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

FinCEN estimates it would cost about $85 for simple businesses to comply with the new rule.

But the NSBA sees the creation of a national registry that would require small-business owners to submit detailed personal information when banks are already required by law to collect ownership information. The organization said it was an attempt to shift compliance costs to small-business owners.

“The CTA is simply passing the buck from big banks—which have legions of staff to absorb this kind of reporting requirement—to small businesses like mine,” stated NSBA Chair Mike Stanek. “A simple mistake has the potential to land a small-business owner in jail for as long as two years.” Source of the article Bizjournals.com.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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