There’s a new government that’s going to affect a number of small businesses across the United States as of the beginning of this year, January 2024.
It’s called the Corporate Transparency Act, and you might have to start reporting information about the ownership of your business to the federal government. It was passed to prevent individuals from hiding or benefiting from the ownership of their businesses to make it easier to hide illegal operations, which supposedly is a tactic that affects national security and economic integrity; sounds a bit scary, doesn’t it?
The act was passed in 2021 to fight criminal activity including tax fraud, money laundering, and financing for terrorism by capturing ownership information for American businesses operating in or accessing the country’s market. The term “country’s market” is a confusing term, so take a look at the explanation of what it means via the link above.
In essence, it’s a way to monitor whether small businesses are working with investors to take advantage of products marketed to other countries so they can get around having to pay more taxes to the government. That’s still confusing, which is why we’re linking to this article on Investopedia that helps to explain more on the topic of market economy, which many people may have heard of but might not fully understand what it means.
An easy example is to think about a small business furniture company that might be the only business selling that type of item within their general location. Another U.S. company comes to them and wants to buy shares in the company, with the idea of sending those products to other countries, and they want to cover those costs. If they buy at least 25% of ownership, the federal government sees that as potentially committing tax fraud, money laundering, or other types of monetary entry into another country’s economy by trying to hide their contract with the original company, which includes possibly supporting terrorism in those countries.
Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company.
On the Financial Crimes Enforcement Network page, it lists what kinds of businesses might be required to fill out information on forms that are on the page, reporting deadlines, and ways one might be able to qualify for an exemption if their business type fits under the rules of the Act.
Luckily, most small businesses won’t have to worry about any of this; the International Association of Commercial Administrators (IACA) has a page that lists 23 categories of exempt business, which includes “sole proprietorships, some general partnerships, foreign entities not registered to do business in the U.S., unincorporated associations, and wealth planning trusts.”
For an overwhelmingly number of us, this isn’t anything we have to deal with. For those who might need to act on it, For those companies that do, if your company was established before January 1st of this year, the filing deadline is January 1, 2025. Those created between January 1, 2024, and January 1, 2025 have 90 days from either the actual notice of formation or public announcement, whichever comes first. At the beginning of next year, any new companies will have 30 days to file the paperwork.
There’s a lot to take in, and our explanation won’t do it justice unfortunately. Check out all of the links in this article if you have any inkling this might apply to your business and business connections to verify whether you’re exempt or not.
