NEW ORLEANS — Leon Rittenberg III, an attorney at Liskow & Lewis, is not a fan of the new federal Corporate Transparency Act, which goes into effect on Jan. 1, 2024. Even so, he said business owners need to educate themselves on the new rules in order to avoid fines or worse.
Under the law passed in 2021 and going into effect in a few days, many small businesses will need to register with an agency called the Financial Crimes Enforcement Network next year.
The law, which sets its sights on shell companies, is designed to fight attempts by “criminals, organized crime rings, and other illicit actors to hide their identities and launder their money through the financial system,” according to Treasury Secretary Janet Yellen.
“The theoretical purpose of doing all of this is to prevent Russian oligarchs from owning things in the United States of America,” said Rittenberg, whose specialties include taxation. “The basic idea is that almost every company in America is supposed to do a filing, beginning Jan. 1, that discloses who their majority owners are and who their managers are. They want a name, address, social security number, and copy of your driver’s license or passport. It’s very invasive.”
The AP says an estimated 32 million small businesses will need to comply (although, notably, businesses with more than 20 employees and more than $5 million in sales may qualify for exemptions).
Though the law goes into effect in a few days, the deadline for existing businesses to register has been extended to Jan. 1, 2025. Businesses that are created after Jan. 1 will have 90 days to comply. Penalties for noncompliance could reach $10,000.
Rittenberg thinks the people who are gonna be most inconvenienced by the new rules are the ones who just don’t know anything about them yet, especially owners of small companies.
”I gave a speech about this to 150 chief financial officers in July and they weren’t aware of it,” he said. “So how do you expect a guy with a food truck to be able to comply with these rules?”
Another tricky situation will be businesses that have investors who aren’t willing to share their personal information. Or families that operate multiple businesses, some but not all of which may be exempt from registering. And, of course, there’s always the potential for fraud.
“Scammers are already sending out letters to people saying, ‘Send me your information for your FinCEN,’” he said. “People will try and get your personal information any way they can and this is the latest way.”
Unless there’s a major backlash, the rules are the rules, however, and Rittenberg recommends business owners educate themselves. He said “do it yourselfers” can go to the FinCEN website and look up the details. Others will want to talk to an adviser, which leads to one silver lining in all this. At least for the lawyers and accountants. Rittenberg said the government estimates that 32 million companies will spend 118 million hours and $85 billion in 2024 complying with the new rules.
The time and money will be spent on initial registrations — but also on necessary updates.
“There’s a 30-day update rule,” said Rittenberg. “You have to list, for example, the name of your chief financial officer, and include his or her driver’s license as part of this filing. If that employee moves and gets a new mailing address, you have to do an updated filing. If you have someone who changes their name – when they get married, or they get divorced — you have to do an updated file.”
Regardless of the headache and expense, Rittenberg said business owners need to “learn the rules and make a filing on time and come up with a system to be able to comply” — unless there’s a last-minute change to the rules.
“This is all starting January 1 unless congress does something or unless it becomes like Taylor Swift tickets, and the system explodes because it can’t handle the volume of information,” he said.
