Based on a National Federation of Independent Business survey, 90% of respondents are unfamiliar with the reporting requirements of the Corporate Transparency Act (CTA). Businesses with 20 or fewer employees and under $5 million in revenue will be required to report the personal information of owners, board members, senior employees, attorneys, and others beginning Jan. 1.
Businesses will not only have to provide the information but keep it up-to-date. The CTA includes civil and criminal penalties of up to $10,000 and two years of jail time for non-compliance.
Nearly 70 trade organizations continue to seek a delay on the CTA implementation by one year, including the S Corporation Association, Small Business & Entrepreneurship Council, and Society of Collision Repair Specialists (SCRS). They sent a letter to Congress earlier this week in support of the concerns voiced to the U.S. House of Representatives by the American Institute of Certified Public Accountants (AICPA).
“The scope of the data collection is beyond anything the Federal government has ever attempted outside of the Tax Code,” their letter states.
“…[T]his lack of awareness is alarming and needs to be addressed before the law is implemented. A year’s delay will provide FinCEN and the business community with more time to educate owners of their new obligations. It will also give Congress and FinCEN time to review the new rules to ensure they are successful.”
AICPA wrote in its July letter to the House about a lack of companies that are even aware of the new law, the burden it places on small businesses, and could put non-attorney practitioners in the position of practicing law unauthorized.
“Over and over, we have heard that their business clients were unaware [Financial Crimes Enforcement Network] FinCEN even existed, much less that this obscure government agency would be requiring sensitive, personally identifiable information, in a new filing,” AICPA wrote.
“As BOI reporting regulations move forward, we encourage FinCEN to implement a robust plan for engagement with taxpayers that protects the evolving public interest. FinCEN’s plan should give businesses a fair time frame to gain awareness and a reasonable time frame to comply with the requirements. Such a plan would create the necessary transparency for all businesses to feel certain about meeting their filing requirements.”
AICPA added that the CTA was reportedly only to require four pieces of easily obtainable information including name, date of birth, and address but FinCEN has outlined 51 questions that companies will be asked, many with multiple sub-part questions.
The trade groups agreed with AICPA that the law would be overly burdensome, noting that it would affect nearly every small business in the U.S. and that FinCEN isn’t ready to handle the more than 32 million reports it expects to receive next year. An additional 5-6 million filings are estimated to be filed each year beginning in 2025.
Three primary rules were created to implement the law — the beneficial ownership information (BOI) rule, a rule that specifies who can access BOI information, and a customer due diligence rule.
The BOI reporting requirement was established last September. The Department of Treasury said it would “crackdown on illicit finance and enhance transparency.”
It will require most corporations, limited liability companies, and other U.S. businesses to report information about their beneficial owners — the people who own or control the company, according to FinCEN. The rule on who can access the BOI information hasn’t been proposed.
The proposed due diligence rule would require credit unions to obtain the BOI when a new account for a legal entity is opened by a client, or for its access rule. It hasn’t been established yet.
FinCEN has estimated that businesses will spend more than 32.8 million hours completing and filing the required information next year with an estimated cost of nearly $2,615 per entity.
“However, this estimated cost does not account for the added stress associated with requiring a monthly tracking of all business owner’s information to anticipate when changes could or have occurred,” AICPA wrote. “Moreover, this figure does not consider additional legal or other formation costs required of businesses, particularly in the first year, to understand and identify who exactly is a ‘beneficial owner,’ who exercises ‘substantial control,’ who would be the ‘applicant’ or whether a small business even is considered a ‘reporting company.'”
AICPA and the nearly 70 trade organizations throughout many business sectors urging Congress to delay CTA implementation believe it would “give FinCEN sufficient time to improve and finalize the statute’s regulatory framework while giving stakeholders time to prepare for their new compliance obligations.”
“As the AICPA noted in its letter, FinCEN has significantly underestimated the cost burdens associated with the new reporting regime, it has relied on vague and arbitrary standards in laying out the criminal and civil penalties under the statute, and it has implemented filing deadlines for newly-formed entities which in some cases are impossible to meet,” the trade groups wrote in their letter. “All these shortcomings need to be addressed.”
House Financial Services Chair Patrick McHenry (R-NC) introduced two pieces of legislation in June, including the Protecting Small Businesses Information Act, to delay enacting the CTA rules until all of them are finalized. The second bill, the Accountable Through Confirmation Act, would ensure FinCEN remained accountable.
In August, a bipartisan bill called The Protect Small Businesses and Prevent Illicit Financial Activity Act was introduced by other lawmakers to delay FinCEN’s BOI requirements for up to a year to give businesses more time to comply with the requirements.
None of the three bills have moved passed introduction.
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