Show of hands: Does anyone have a small business that survived the COVID-19 lockdowns? How about the nation's crime spike? Inflation? For those of you who may still have your hands up, get ready for yet another piece of aggravating news that may or may not affect you. It may not, but it probably will. If you have an LLC, it most definitely will.
Without much fanfare or even notice, on January 1, 2024, the Corporate Transparency Act (CTA) went into effect. Depending on your business, you have until January 1, 2025, to file the pertinent data about your business in a Beneficial Ownership Information report with the Department of the Treasury's Financial Crimes Enforcement Network, or FinCen. The report lets the government know who owns or controls your company. Technically, not every company has to file. According to a handy PDF from FinCen, these are the companies that need to file:
1. a corporation, a limited liability company (LLC), or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe; or
2. a foreign company and was registered to do business in any U.S. state or Indian tribe by such a filing.
Oh, and this only applies to companies with 20 employees or less. You can click here to eventually find a list of companies that are exempt. It is an FAQ page and the FAQs are legion. However, I am willing to bet that certain art dealerships and enterprises that budget "10% for the Big Guy" are exempt from filing.
Do you have questions? I'll bet you do! There is all the information you need at the government site! Before heading over, be sure to have a big breakfast and cancel your plans for the day. It is the usual morass of lists, flowcharts, bullet points, and links that characterize most government websites. You could be busy for days. You're better off just asking your accountant if you need to file.
What happens if you don't file? According to FinCen, your door prizes may include:
…civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
A bit of background: the US Chamber notes that the CTA was created to “combat illicit activity including tax fraud, money laundering, and financing for terrorism.” And before you say anything, yes, I am aware of the irony that a law created under the Biden administration is designed to combat money laundering. I'll give you a moment to stop laughing and/or gagging.
Are you outraged? As the old saying goes, you ain't seen nothin' yet.
A judge has ruled that the CTA is unconstitutional. Despite that, the government is going to go ahead and enforce it. Reason.com reports that earlier this month, Judge Liles C. Burke of the U.S. District Court for the Northern District of Alabama's Northeastern Division wrote:
When Congress passed the 2021 National Defense Authorization Act, it included a bill called the Corporate Transparency Act ('CTA'). Although the CTA made up just over 21 pages of the NDAA's nearly 1,500-page total, the law packs a significant regulatory punch, requiring most entities incorporated under State law to disclose personal stakeholder information to the Treasury Department's criminal enforcement arm.
That decision came in the lawsuit "National Small Business United v. Yellen." The parties for the plaintiff were made up of the National Small Business Association and one of its members, Isaac Winkles. The plaintiffs argued that the CTA would "create a cumbersome reporting process for small businesses that are rarely equipped with compliance teams or staff attorneys " for information that banks are required to report by law. They also pointed out that the law would lay the groundwork for a government takeover of "entity formation and self-governance practices" and moreover:
it allows the federal government to usurp roles reserved to the states, imposes unreasonable searches and seizures, and makes up vague terms such "beneficial owners" which are not normally used by businesses or state agencies.
Reason added that once Burke ruled the law unconstitutional, the government said, "Okay." But the feds were not just being good sports about the whole thing. Instead, the government decided that it would not enforce the CTA on the parties of the lawsuit, which includes members of the National Small Business Association as of March 1, 2024. Everyone else needs to get cracking. But not to worry, the government has assured everyone that filing is "simple, secure, and free of charge." And depending on your business, it is also mandatory.
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