Attention small business owners – you need to know what’s going on with the Corporate Transparency Act

March 18 – If you own an S Corporation, an LLC or a partnership, you need to know about the Corporate Transparency Act. 

The Corporate Transparency Act went into effect on January 1, 2024 and it could impact a whole lot of small businesses. 

The CTA is apparently trying to combat tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.

That means a whole lot of small businesses will have to provide ownership information to the government. 

Businesses that do not comply may be looking at criminal or civil penalties.

Chris Morrow, president of the Morrow Group, warned, “Fines are substantial for this. If you miss let’s say the January 1, 2025 deadline, it is $500 a day, a civil penalty. Then there’s a criminal prosecution of up to $10,000 and I believe two years in prison, so it’s serious business.” 

Bev Stitely, owner of Saunders Tax and Accounting said, “The idea of this is looking for money that’s getting laundered or those shell companies of corporations, but there was a court case in the District Court in Alabama, federal court, from the National Small Business United and there is a suspension of needing to file this form. Originally when I read it, I just thought that meant everybody, but it is only the plaintiffs, so the members of the National Small Business United have put this on hold so that they don’t need to file this. Now this is due to be filed by the end of this year for any existing business that was in place before 2024. That has been suspended for those participants, but not for the rest of us.” 

Businesses have until December 31, 2024 to provide the information. 

Stitely said, “My recommendation to business owners right now is let’s not talk about this again until October. Give it some time. New businesses have 90 days from creation to file this form and so they need to go ahead and file within their 90 days. I have discovered that a lot of lawyers who set up LLCs and corporations don’t seem to be aware of this either. Somebody who fills out your application for a new company, you have to report who filed the papers for you. So that would be that attorney that needs to be filing on your form and giving their personal information as well.”

Michele Jansen of NewsTalk 103.7FM noted, “It’s bizarre that the Treasury Department thinks that they can just do this on their own. It’s incredibly intrusive. It’s confusing to people. Why wasn’t this advertised? Why wasn’t there more public comment about this? It’s ridiculous. Also I understand that the database isn’t even properly set up for this information yet, so your data could actually be compromised. The federal government being the federal government.” 

Can anything be done? 

Jansen suggested, “You get them on their bully pulpit. You get your constituents upset, saying we don’t know what this means. We’re confused. We’re afraid it could be abused. The other thing is more lawsuits. We need more companies. I know we’re going to spend more money, but it has to be because how they can say this only applies to the plaintiffs is bizarre. If something’s unconstitutional, it’s unconstitutional, which means every other company should be able to make the same claim.” 

Stitely pointed out, “And it was a federal court, so when you do that injunction, how do you make it just for the plaintiffs when it’s talking about something new that it wouldn’t hurt for them to hold it off? 

Jansen added, “Politically, Congress did set up the framework for this. They did it after 911. So they’re doing this under the pretext we’re protecting you. We’re protecting you from terrorists and money launderers. Really? The people with businesses under 50 people? That’s where we’re having the most problem with that. It seems a little bizarre to me. It’s an abuse of power.”

FinCEN (Financial Crimes Enforcement Network) is the group that’s overseeing the Corporate Transparency Act. 

Jansen said, “Once again, giving up certain liberties or making life more complicated, supposedly, for your safety, but feels like this is incredibly unconstitutional and a court said it was.” 

Stitely suggested, “The other terms you want to be watching out for is part of the Corporate Transparency Act, passed in 2001 and Beneficial Ownership Information, BOI. But watch your states also. States now have some that have started already adding this to the state registry, such as the state of New York has already added it in and the state of New York has a more open database. So the federal criminal investigations are with law enforcement, but the New York one becomes public record.” 

The Beneficial Ownership Information requires every owner of a corporation or partnership to be listed on the official paperwork.  

Morrow said, “I think they’re going to try and match up that maybe with IRS tax returns to see, I think there’s a fear that there’s not a lot of income being reported by some members or some stockholders of a company or a corporation. They want a list of all the shareholders, their names or addresses, of course, they want their pertinent information, social security. So it’s not like a tax return that needs to be filed. It’s general information, but it’s very important that people know that this exists. And that they get it done. There’s I think 23 exclusions, I think the largest corporations are already excluded from it. What makes sense to you and me doesn’t always make sense but I think actually the target may be on the smaller companies, which is unfortunate, but that’s how it stands today.”