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I often speak to groups of business owners in industries ranging from metal processing to distribution of auto parts and supplies. These are smart people. However, many are unaware of a rapidly approaching reporting deadline that could cost them up to $10,000 if they don't comply. is it you
The reporting requirement is part of The Corporate Transparency Act (CTA), a law that was passed in 2021 as part of the National Defense Authorization Act. The CTA requires most business entities in this country to report the full legal name, date of birth, address, passport and/or driver's license information of their “beneficial owners” (defined either as someone who has “substantial control ” over the reporting company either by ownership or by influencing its management decisions) to the federal government. Each beneficial owner of each entity must be reported to the entity by December 31. What is the cost of not doing so? Up to $10,000 in fines for each entity.
Have I got your attention? I hope so. And maybe you have the following questions – or misunderstandings:
“A $10,000 fine? Why have I never heard of this rule before?”
This is understandable. The federal government has done a poor job of spreading awareness. Unfortunately, many financial professionals, business experts and consultants have not put enough pressure on their clients to comply. And the media? They're more interested in reporting on elections and pop culture than boring, unsexy business regulation. But this is not an excuse. This is not just another rule. It is a law. And the fine is real.
Related: Not filing this new mandatory report could cost your business $500 a day
“Is this just more red tape?”
I'm sure – as many business owners I know – you've been inundated with regulations lately. i understand Over the past few years, businesses have had to comply with new rules and regulations on how they classify workers, pay overtime, address discrimination and ensure safety in their workplaces from government agencies, starting with the Department of Labor up to OSHA. These are regulations that can be (and are) challenged in court and can even be overturned or overturned by future administrations.
However, the CTA is not just a regulation or executive order. It is legislation. Yes, it can be challenged in the courts (see below), but it cannot simply be overturned by a new president. It has more teeth and should be taken seriously.
“That won't take long—will it?”
Some think the law will be struck down in the courts or by Congress. But that's unlikely anytime soon. The opposition by legislators in Congress has been weak and ineffective so far. Business groups like National Small Business Association (NSBA) AND Michigan Small Business Association have filed lawsuits challenging the law's constitutionality, but those lawsuits will take many months before they get their day in court. A federal judge in Alabama overturned the law earlier this year, but because the case was not a class action, the decision is only affected members of a single association – about 65,000 small businesses of 33 million potentially affected. Treasury Department is pledged to proceed with the deposit request for all others and it is attractive the judgment.
“I doubt my business will be affected because it's so small.”
No, your business is not too small. In fact, the opposite is the case. The smaller it is small businessthe more likely you are to be affected. The CTA's goal is to detect any US company owners who may be a security risk. There are 23 types of businesses—from accounting and law firms, banks and credit unions to most tax-exempt entities—that excluded. The government isn't going after the biggest companies, which is why firms with more than 20 employees or more than $5 million in revenue are exempt. Why? Because the probability that these companies have shareholders who pose a security threat is less likely because there is regulatory and professional oversight that monitors their ownership.
This is why it is the smaller entities – small partnerships, limited liability companies and transfers – that are considered the most likely to have potential bad actors as owners. These entities are easy to set up. There are few restrictions. These are “shell companies” or “fronts” or freelancers and freelancers that can then be used as decoys for illegal businesses or criminal organizations. The government wants to know about them. Keep in mind that the CTA is part of the National Defense Authorization Act.
Related: Data privacy matters to your customers – Let them know it's a priority for you too. Here's how.
“I don't trust the government with my data.”
Given the number of intrusions, breaches and other security flaws that expose our most personal information to hackers, it makes sense to be careful how protect your data it will be. And given that you are asked to provide data from your passport or driver's license, it is reasonable to worry about how it will be used. I have the same concerns. But unfortunately, there are few options here. The government requires us to hand over this data, and unless something happens to stop this law from being enforced, or new legislation overturns it – that's what we have to do. You can take cynical comfort in knowing that much of this data is probably already known to the government (or available somewhere on the dark web), but of course, that's just a fact of life in the 21st century.
“My accountant will charge me.”
If you seek the help of a financial or legal professional, then yes, they will likely pay you. But know that reporting your beneficial owners is actually not that difficult. You can get a financial or legal professional to help, but it's not really necessary. i went online and filled out the information for my company. It took me less than 15 minutes. Note that updates should be made when there is a change in ownership, but this is unlikely for my company in the foreseeable future.
Compared to all the other headaches we have as business owners, the reporting process required by the CTA is pretty low on the list. I know it's annoying. But hey, as I tell all the business owner groups I talk to so often, it's the government, right?