This follows a month of legal back-and-forth, during which state and federal courts have overturned each other, requiring or absolving America’s estimated 33 million small businesses of paperwork that, if required and not done, could cost them thousands of dollars in fines.
On Dec. 3, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction of the Corporate Transparency Act (or CTA), on the grounds that the act may be unconstitutional. The federal government appealed that ruling on Dec. 5.
On Dec. 23, a panel of judges in the U.S. Fifth Circuit Court of Appeals reversed the Texas court’s ruling, saying that a reporting requirement falls well within Congress’ right to regulate economic activity through the U.S. Constitution’s Commerce Clause, and pushed back the reporting deadline from Dec. 31 to Jan. 13.
Then on Dec. 26, a separate panel of judges called the “merits panel,” also on the U.S. Fifth Circuit Court of Appeals, reversed the first panel’s decision, meaning filings are once again no longer mandatory.
All of this for a reporting requirement that, for most businesses, takes about five minutes.
“I could very easily foresee this going up to the Supreme Court,” Sarah Webber, an associate professor of accounting at the University of Dayton, previously told this news outlet.
At the same time, scamming is rife on the internet during the confusion. On Dec. 18, FinCEN issued an alert to raise awareness of fraud schemes abusing FinCEN’s name, insignia, and authorities.
“We are very concerned about reports of scammers using FinCEN’s name to perpetrate fraud schemes against the public for financial gain,” said FinCEN Director Andrea Gacki.
“We urge the public to be vigilant in identifying and avoiding these schemes and to be extremely cautious when dealing with unsolicited correspondence. FinCEN and its employees will never threaten a member of the public by email, call, or text, or demand immediate payment for any reason.”
These fraud schemes involve creating fake websites that mimic FinCEN’s Money Services Business Registration tool, where BOI (beneficial ownership information) reporting is done, and scammers have also impersonated FinCEN employees, demanding or threatening business owners for payment, according to the agency.
In reality, filing the BOI report is free of charge.
The Corporate Transparency Act was passed in 2021 and aims to curb financial crimes, such as using LLCs as shell companies, by reporting ownership information to FinCEN.
The U.S. Treasury describes beneficial ownership information (or BOI) as “identifying information about the individuals who directly or indirectly own or control a company.” The reporting mandate applies to many business entities, including LLCs.
There are multiple exceptions to the requirement, including banks, credit unions, public utilities or tax-exempt entities, and large companies and corporations already furnish similar data.
The agency asks that anyone who encounters fake websites or impersonators should report these scammers to Treasury’s Office of Inspector General and the Federal Trade Commission, and victims of online government imposter scams should file a complaint with the FBI’s Internet Crime Complaint Center.
If enforcement ultimately goes forward through the courts, small businesses and their owners could face penalties of $500 a day, adjusted annually for inflation (right now, the penalty sits at $591). Willful violation of the requirement can result in up to $10,000 in fines and two years jail time.
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