A new law, the Corporate Transparency Act, went into effect in 2024, requiring millions of small business owners to report personal information to the government. While presented as a measure to combat financial crime, the act has sparked controversy and debate about government overreach and potential privacy violations.
What is the Corporate Transparency Act?
Passed in 2021, the Corporate Transparency Act mandates that small businesses disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The stated goal is to prevent money laundering and illegal activities by making it more difficult for individuals to hide behind complex business structures.
Who Must File?
The act impacts a significant portion of the American business landscape. An estimated 32 million small businesses will be required to comply with the new regulations. This includes S corporations and C corporations. However, sole proprietorships and LLCs taxed as sole proprietorships are exempt from filing.
Businesses formed before 2024 have until January 1, 2025 to file, while those formed in 2024 must file within 90 days of their formation. Going forward, businesses formed in 2025 or later will have 30 days from the date of formation to submit their reports.
What Information Must Be Disclosed?
The act requires small business owners to disclose the following personal information about themselves and any beneficial owners:
- Legal name
- Date of birth
- Residential address
- Driver’s license or passport information
This information will be accessible to a variety of government agencies, including federal, state, local, and tribal law enforcement; financial institutions; and even foreign entities under certain circumstances.
Penalties for Non-Compliance
Failure to comply with the Corporate Transparency Act carries significant penalties, including:
- Fines of up to $10,000
- Imprisonment for up to two years
- Civil penalties of $591 per day for each day the violation continues
Criticism and Concerns
The Corporate Transparency Act has drawn criticism from various quarters, including lawmakers and business advocacy groups. Key concerns include:
Government Overreach and Privacy Violations
Critics argue that the act constitutes government overreach and raises serious privacy concerns. Requiring millions of law-abiding business owners to disclose personal information to a government database, accessible by a broad range of agencies, is seen as an invasion of privacy with limited demonstrable benefit in combating financial crime.
Exemptions for Large Corporations
A major point of contention is the exemption of large corporations, including banks, money service businesses, and venture capital funds, from the reporting requirements. Critics point out that these entities are not immune to engaging in money laundering or other financial crimes, making the exemption appear arbitrary and potentially counterproductive.
Lack of Transparency and Public Awareness
Concerns have been raised about the transparency of the information collected and the government’s efforts to raise awareness about the new requirements. Despite claims of a “robust outreach program,” many small business owners remain unaware of the law and its implications. This lack of awareness could lead to unintentional non-compliance and severe penalties for unsuspecting entrepreneurs.
Efforts to Repeal the Act
In response to mounting criticism, several lawmakers have introduced legislation to repeal the Corporate Transparency Act. However, these efforts have faced significant challenges, with bills stalling in Congress.
Resources for Small Businesses
Small business owners seeking more information about the Corporate Transparency Act and their filing obligations can visit the following resources:
Conclusion
The Corporate Transparency Act represents a significant development in the regulatory landscape for small businesses. While the act’s stated aim of curbing financial crime is laudable, concerns about its scope, potential for government overreach, and impact on small businesses are legitimate and deserve serious consideration. As the implementation of this new law unfolds, it is crucial for small business owners to stay informed about their obligations and the potential implications for their operations.