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published on February 24, 2022 - 2:40 PM
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Proposed rulemaking from the U.S. Treasury has elicited privacy concerns about a possible federal registry of business owners.

In December, the Treasury’s Financial Crimes Enforcement Network (FinCen) issued a notice titled “Beneficial Ownership Information (BOI) Reporting Requirements” to implement changes from the Corporate Transparency Act (CTA) enacted in January 2021.

A part of the National Defense Authorization Act for fiscal year 2021, the CTA sets to establish a new system for the reporting, maintenance and disclosure of beneficial ownership information — essentially, who owns a company on paper.

Treasury officials say it is part of an effort to fight corruption, money laundering, terrorism financing and other financial crimes.

The reports must include four pieces of information about owners with at least 25% control of a company, subject to size and revenue limits. The personal information required would include name, birthdate, address and an image of an “acceptable identification document.”

Ronald Arch Henderson, a Fresno tax attorney with law firm Fennemore Dowling Aaron, said that while the final details are yet to be hashed out, the reporting requirements will eventually become law.

Henderson stressed that the reporting company, not the applicant who files documents on a company’s behalf — a Certified Public Accountant, for example — must accurately report ownership details.

“It’s not our obligation to report — it’s the reporting company’s,” Henderson said. “If they’re willful in not filing these things, there are some hefty penalties as well as potential criminal liabilities.”

 

Who does it apply to?

The BOI reporting requirements will apply to legal entities such as corporations, limited liability companies, partnerships and trusts.

The CTA text explains that “malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity”, however, “most or all States do not require information about the beneficial owners of the corporations, limited liability companies, or other similar entities formed under the state.”

There are 23 specifically exempted categories of entities that will not be required to report, including domestic banks, bank holding companies, saving and loans companies, federal or state credit unions, investment advisors, insurance companies and registered public accounting firms.

Also exempt from reporting would be companies that meet all of the following criteria:

  • Employ more than 20 workers on a full-time basis in the US
  • Have filed federal income tax returns in the previous year showing more than $5 million in gross receipts or sales
  • Have an operating presence at a physical office in the US

Henderson said business owners who are properly paying their taxes may see this as more “Big Brother” government intrusiveness. And it will add to the paperwork burden for even the smallest of business.

 

“Even small businesses with just five employees and a couple of owners are going to have reporting requirements”, Henderson said. “We have so many reports required with the state of California and the Franchise Tax Board. This is just another one in the mix.”

 

Timing is crucial

Companies formed before the final rules are enacted will have one year to file their reports. Companies created or registered after the effective date of the final rule would have 14 calendar days to file their initial report to the FinCEN.

The proposed reporting requirements will not have any effect on tax rates for the reporting parties, Henderson said. “It’s not a taxing statute.”

The information gathered from the reporting requirements, such as who is the beneficial owner of a corporation, will be limited to FinCen and other government departments to access. It will not become public knowledge, Henderson said.

“It’s very restricted as to who has access, and it’s to help the U.S. government know who the real owners are,” Henderson said. “For years, a lot of people have formed entities in a lot of places where they didn’t have to reveal their ownership — layers of corporations owned by other corporations — to conceal or not make it obvious who the beneficial owner was. This is what the requirements are trying to prevent.”

 

Violation nation

The CTA does lay out civil and criminal penalties for individuals that purposely report false or fraudulent information.

Individuals in violation will be liable for a penalty of up to $500 for each day a violation continues or has not been fixed and may be fined up to $10,000 and imprisoned for up to two years, or both.

In a letter sent to the Treasury, the National Federation of Independent Business (NFIB) stressed that the proposed rule would create issues for smaller businesses.

“The proposed rules will further challenge struggling small businesses with new paperwork requirements and will create a first of its kind federal registry of small business owners, which is a privacy concern for many,” said NFIB President of Federal Government Relations Kevin Kuhlman. “We urge the Treasury Department to adjust the rules and reduce the burden on small businesses, as the law requires.”

According to the letter, the proposed rules would require more than 25 million existing small businesses in America to spend an aggregate of $4 billion to submit reports to FinCen.

According to the Treasury, it should cost companies about $50 to prepare and submit an initial report.

The NFIB recommends adjustments for the rules including giving the public more time to comment on the rules, lengthening deadlines for reporting and recognizing that reporting companies can only certify accuracy and completeness of reports to the extent of their knowledge.

Scott Miller, president of the Fresno Chamber of Commerce, said that usually he will get a lot of calls from local business leaders when tax regulations are coming down the pipeline, but he hasn’t heard a lot on this proposal.

Miller said he will keep his eye on it, but hasn’t heard of it being a pressing issue for businesses yet.

“I get a lot of calls whenever there’s any new tax regulations coming, but I haven’t heard anyone talk about this to me yet. It’s something that is probably not on a lot of business owners minds now,” Miller said.


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