New Federal Law Requires Most Small Businesses to Report Owners’ Personal Info to the Government

If you own a small business, you’ll want to pay attention to this. There’s a new law on the books that likely applies to you, and it’s causing quite a stir. It’s called the Corporate Transparency Act (CTA), and it requires most small businesses to report the personal information of their beneficial owners to a special unit of the Treasury Department. The goal is to prevent bad actors from using anonymous shell companies for shady activities like funding terrorists or money laundering.

Why Some Business Owners Are Upset

The CTA has faced significant pushback from business owners and advocacy groups who argue it unfairly targets small businesses. Here’s why:

  • The law primarily impacts companies with 20 or fewer employees, while larger corporations are mostly exempt. This has led some to criticize the law as unfairly targeting mom-and-pop shops. They argue it creates unnecessary red tape and invades owners’ privacy.
  • Many feel the law is an overreach by the federal government into the lives of small business owners. They question why they should have to report personal information to a crime-fighting agency when they’ve done nothing wrong. 
  •  Some worry that the data collected could be vulnerable to hacks or leaks, putting their privacy at risk.

Small business advocates also argue that the burden of compliance falls disproportionately on smaller companies that don’t have the same resources as larger corporations to navigate complex regulations. They fear the cost and time required to comply with the CTA could take away from their ability to focus on running and growing their businesses.

Legal Challenges and the Road Ahead

In response to these concerns, two plaintiffs (a business owner and a small business association) filed a lawsuit challenging the CTA’s constitutionality. In a surprising development, a federal court in Alabama ruled that the CTA is unconstitutional on March 5, 2024, citing that it exceeds Congress’ powers under the Constitution.

However, it’s important to note that the court’s order only blocks enforcement of the law against the specific plaintiffs in the case. The Treasury Department has indicated it still plans to enforce the CTA against all other businesses. And not surprisingly, the U.S. Department of Justice (DOJ) appealed the ruling on March 12, 2024.

So while the lawsuit is a promising development for those opposed to the CTA, the law remains in effect until the courts rule more broadly on the appeal. Business owners should continue to prepare for the reporting deadlines, but know that the legal battle is far from over. We’ll be closely monitoring any updates on the litigation and will keep you informed.

Do You Need to File a Report?

You likely need to comply with the CTA if your company is a:

  • Corporation
  • Limited Liability Company (LLC)
  • Limited partnership
  • Business trust
  • Most other entities formed by filing documents with a state 

There are some exceptions, like for non-profits and companies with over 20 full-time employees. Check the FAQs on the Treasury Department’s website for a full list of exemptions:

If you’re still unsure whether the law applies to your business, consult with a business attorney or your CPA. They can assess your specific situation and advise you on your reporting obligations.

Key Dates to Know

  • The CTA reporting requirement went into effect on January 1, 2024.
  • If you form a business in 2024, you have 30 days from receiving notice of your company’s formation to file your initial report.
  • If your business was formed before 2024, you have until January 1, 2025 to file.
  • After filing your initial report, you’ll need to file updates within 30 days of any changes to the info reported.

What Info You'll Need to Report

The CTA’s reporting requirements are often referred to as “BOI reporting,” which stands for Beneficial Ownership Information. For each beneficial owner of your company, you’ll need to provide:

  1. Full legal name
  2. Date of birth
  3. Current address
  4. Identification number from a driver’s license or passport 

A beneficial owner is anyone who owns 25% or more of the company or exercises significant control over it, like a CEO or president. The government wants this information to create a database that can help law enforcement identify and combat illicit activities conducted through anonymous shell companies.

How to File Your Report

Filing is done through FinCEN’s BOI portal online:

You’ll need to create an account and then input the required information about your company and its beneficial owners. 

The good news is that the filing itself is free and should only take a few minutes.

Penalties for Not Complying

Failing to file a report or filing an incomplete report can result in a $500 per day fine (up to $10,000) and up to 2 years in jail. So while the reporting process is fairly quick and painless, the consequences of non-compliance are serious.

It’s important to note that even though the CTA is facing legal challenges, most advocacy groups, like the American Institute of CPAs (AICPA), are still advising small businesses to continue filing BOI reports until the matter is fully resolved in the courts. The AICPA has been pushing for the reporting requirements to be suspended in light of the recent court ruling, but for now, the law remains in effect for most businesses.

So while it may feel unfair or burdensome, the safest course of action is to comply with the reporting requirements to avoid potential penalties. We’ll keep you updated on any changes to the law or its enforcement as the legal battle progresses.

What's Next?

The CTA remains the law of the land for now, despite the recent court ruling. We’ll be monitoring the legal situation and will update you if anything changes.

In the meantime, our recommendation is:

  • If you form a business in 2024, file your initial report within 30 days to stay compliant.
  • If you had a pre-2024 business, you have until January 1, 2025 to report. So go ahead and use that extension to the fullest, but keep an eye on any updates so you don’t get caught unprepared next year.
  • When in doubt, talk to your business attorney or accountant.
  • Visit the official BOI website for more details:

We hope this helps you understand this new law and what it means for your business. As always, we’re here to support you and keep you informed. Don’t hesitate to reach out with questions!

Cover Image ©Rafael Henrique | Adobe Stock

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