Clock Ticking Again For Small Businesses To Report Ownership

A deadline for small businesses to file new federal disclosure reports was off then on then off again. But it’s back, with a new March 21 deadline to report beneficial owners to the federal Financial Crimes Network, or FinCEN. 

But even that deadline is not firm.

The new report is part of the 2021 Corporate Transparency Act, aimed at ensuring even the smallest of businesses report information about their “beneficial” owners, to prevent money laundering, tax fraud, and other illegal activities.

Beneficial owners are considered anyone who has a major influence on a company’s decisions or operations, such as a president or CEO, or those who own 25% or more of a company’s shares, or who have a similar level of control over the company’s equity. 

The constitutionality of the law is still facing a challenge in the U.S. District Court for the Eastern District of Texas. That court agreed to lift its stay while the court case proceeds, clearing the way for FinCEN to announce on Wednesday its new deadline for filing the forms.  

But FinCEN is already saying in its own announcement that it will use the intervening days between now and March 21 to reconsider the deadline. 

Meanwhile, the U.S. Congress is considering legislation that would set a new, end-of-year deadline for the embattled report. 

“On again, off again — this is creating a significant amount of confusion with small business owners,” CPA Robert Dickerson told Cowboy State Daily. “Especially if the legislation which passed the U.S. House this week is passed by the Senate and the deadline is kicked down the road to the end of this year.”

The cherry on top of it all to Dickerson is that FinCEN also announced it will likely revise the beneficial owner reporting rule anyway, to make it less burdensome to “low-risk” businesses. 

“So, in the meantime, U.S. small businesses are caught complying with rules and regulations that may or may not be applicable tomorrow, 30 days from now, 10 months from now,” he said. “It is the regulatory environment small business is burdened with — roll out more regulations, let’s figure out the impact later. We are going to regulate small business out of existence if we keep it up.”

Duplicative Filing

Advocates of the Corporate Transparency Act have said reporting beneficial ownership is needed to crack down on those using LLCs and corporate trusts to hide financial misdeeds like tax fraud, money laundering, financing terrorism, and other questionable activities. 

Critics of the law, however, have pointed out that FinCEN already gets this type of information — from the financial institutions that small businesses bank with. Banks and credit unions require their business customers to report beneficial owners to them, as a means of ensuring their institution isn’t involved in anything shady.

The Corporate Transparency Act is thus duplicative, critics contend, requiring information that is already in a FinCEN database somewhere.  

Secretary of State Chuck Gray is among those in Wyoming questioning the measure’s constitutionality.

“I am very disappointed in the outrageously wrong ruling allowing the onerous CTA requirements to be reinstated on small business owners in Wyoming,” he told Cowboy State Daily. “This latest ruling continues to add to uncertainty to our business community and unconstitutionally intrude into our state, and our small business owners. The effect this ruling has on small business owners in Wyoming will be devastating.”

Gray said he believes President Donald Trump will likely put a stop to the Corporate Transparency Act, pointing out it was something he vetoed during his first term.

“I am disappointed in the lack of any action by (Wyoming Attorney General) Bridget Hill and (Gov.)Mark Gordon to stop the enforcement. of the CTA in Wyoming,” Gray added.

Gray had called on Hill last year to file suit on behalf of Wyoming and seek an injunction for the Cowboy State. Gray is posting updates about the new reporting requirement for small businesses online. 

Stiff Penalties

The penalties for failing to file the newly required forms are stiff, at up to $10,000 and potential jail time.

The filing has been aimed primarily at small businesses. It covers any business registered to operate in the United States with 20 or fewer employees or $5 million or less in annual gross sales receipts. There are 23 exemptions listed by FinCEN, ranging from banks to insurance companies and public utilities. 

The report requires taxpayer identification numbers, legal names, and trademarks, as well as U.S. addresses for the main business site, or, if foreign-based, a U.S. operational location.

The forms aren’t required annually necessarily, but must be updated whenever there’s a material change, whether due to marriage, divorce, change of address, or even just a new driver’s license number. 

The on-again, off-again rigamarole has had some business owners, throwing up their hands and filing the form anyway — even if it may turn out that it’s not required after all.

Small business owner and retired lawmaker Tom Lubnau, for example has already filed the form, though he described it as a headache from start to finish.

The first difficulty is simply finding the right site, amid all the ones seeking to charge money for filing the free form. 

“The site you want is FinCEN.gov,” Lubnau said.

Although, business owners might prefer to pay someone else to file the form, once they see how difficult the filing process is. 

“It’s so slow and arduous,” Lubnau said. “I’ve got two family limited liability companies, and that website is just really hard to negotiate. It’s notoriously hard and it took me half a day every day to figure out how to file it.”

A photo scan of a driver’s license is a required portion of the online filing.

Renée Jean can be reached at renee@cowboystatedaily.com.