A coalition of more than 100 trade associations representing a large variety of industries is urging Congress to delay beneficial ownership information reporting, as relatively few businesses are aware of the new requirement, including owner-operators.
On Thursday, July 25, a large group of trade associations ranging from veterinarians to funeral directors to roofing contractors sent a letter to the Senate Committee on Banking urging lawmakers to hit the pause button on the Corporate Transparency Act’s beneficial ownership information filing deadline.
The coalition of trade associations points out that very few businesses are even aware of the new beneficial ownership information requirements. Sens. Tim Scott, R-S.C., and James Lankford, R-Okla., have introduced amendments to the FY2025 National Defense Authorization Act that will provide the business community and federal regulators more time to educate small business owners about the new reporting requirements.
Until those amendments are passed, small business owners, including most owner-operator truck drivers, must submit a beneficial ownership information report or risk potentially massive fines.
What is beneficial ownership information?
New this year, small businesses have to report to the federal government certain information about those with a large financial stake in the company.
In an effort to prevent financial crimes often committed through shell companies, the Treasury Department issued a final rule in September 2022 implementing the Corporate Transparency Act.
The new rule established beneficial ownership information reporting requirements. Reporting companies include corporations, limited liability companies and “any other entities created by the filing of a document with a secretary of state or any similar office in the United States.” Exceptions are carved out for banks, insurance companies and companies with more than 20 employees and more than $5 million in gross revenue.
Listen to Barry Fowler of Taxation Solutions explain how beneficial ownership information reporting affects owner-operators:
A “beneficial owner” is an individual who exercises substantial control over the entity or owns or controls at least 25% of the company’s ownership interests. The definition of “substantial control” is vague but includes senior officers, important decisionmakers and individuals with the authority to appoint or remove senior officers or a majority of the board of directors.
Beneficial owners must submit to the Financial Crimes Enforcement Network their full legal name, date of birth, current address and identification number from a driver’s license, ID card or passport. Changes to any of that information require an update to the Treasury Department. The Financial Crimes Enforcement Network retains the information for at least five years after the company terminates.
Reporting of beneficial ownership information went into effect on Jan. 1 for newly formed companies. Existing companies are required to submit reports on Jan. 1, 2025. Failure to comply can result in a $500 per day penalty up to $10,000 and two years’ imprisonment. Reporting can be completed at boiefiling.fincen.gov.
Lack of awareness
Trade associations claim that few companies are complying because no one knows about the beneficial ownership information rules.
The new rule went into effect this year. However, there appears to be a lack of compliance among the millions of small businesses affected by the rule due to a lack of awareness, subjecting small business owners to potentially large fines.
“Although filing under the (Corporate Transparency Act) began at the start of this year, only a few million businesses have registered, while an estimated 28 million covered small businesses have yet to file,” the coalition letter states. “This compliance rate of less than 10 percent is a direct result of the general lack of awareness among business owners regarding the new rules. While the business community and FinCEN have gone to great lengths to educate small business owners, it is clear additional time is needed. Absent a delay, millions of law-abiding citizens will be at risk of steep fines and criminal penalties come the end of this year.”
The coalition points out that lawmakers called for a beneficial ownership information reporting deadline of at least two years from when the rule went into effect. However, the Financial Crimes Enforcement Network shortened that to one year in its rulemaking.
Trade associations are not calling for a complete removal of the beneficial ownership information requirements. Rather, they are asking Congress to pass Sens. Scott and Lankford’s amendments that will delay the reporting deadline by one year in order to ensure everyone affected knows about it.
Legal challenges
In a lawsuit filed by the National Small Business Association earlier this year, an Alabama federal district court judge ruled the new beneficial ownership information reporting requirement unconstitutional, but the judgment prohibits the federal government only from enforcing the Corporate Transparency Act against members of the association.
The Department of the Treasury has appealed the decision to the Eleventh Circuit. Oral arguments are scheduled for Sept. 23.
Beneficial ownership information reporting remains intact … for now
Until the federal court case plays out or until the aforementioned amendments are signed into law, small-business owners, including owner-operator truck drivers, will need to submit a beneficial ownership information report.
Because the federal court final judgment was narrow in scope and applies only to members of the National Small Business Association, any small business that was not a member of that association at the time of the ruling is still subject to the new beneficial ownership information rules.
Fowler told Land Line Now that any owner-operators running a sole proprietorship under a “doing business as” or their own name do not have to submit a beneficial ownership report. Only businesses that have to file with the secretary of state are required to submit a report.
Fowler also pointed out that the reporting process is quick, simple and free. Business owners should be wary about any service offering to submit the report for a fee. LL
Credit: Source link
