Small to Medium Business Owners Saddled with New Regulation
In the world of private wealth management for small to medium businesses, staying informed and compliant with legal requirements is crucial for safeguarding your assets and legacy. One such area of compliance involves the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) reporting. These regulations, aimed at enhancing transparency and preventing illicit activities, can be complex but are essential for business owners to SAFELY comply.
The Corporate Transparency Act was signed into law on January 1, 2021, as part of the National Defense Authorization Act. It requires certain U.S. and foreign entities to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury. Its mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the strategic use of financial intelligence.
The AICPA (American Institute of Certified Public Accountants) and the WICPA (Wisconsin Institute of Certified Public Accountants) has vehemently opposed the enforcement of current deadlines regarding the BOI requirement citing need for clarification and guidance from FinCEN and a significantly underinformed populus of business owners, many of which have never heard of the law much less how to successfully comply. Both organizations strongly support anti-money laundering regulations and are asking for a delay with enforcement to provide small and medium-sized businesses ample time to conform. So far, those requests have been unsuccessful at delaying enforcement. Many law firms are also scrambling to navigate these uncharted waters.
One major challenge is determining which companies are considered “reporting companies”, and who the “beneficial owners” are. According to the FinCEN Small Entity Compliance Guide you MAY be a reporting company based on this flow chart, with the key word here being “MAY”, not to mention the 23 categories of exceptions that follow. To make matters worse, the definition of a “Beneficial Ownership Interest” is somewhat broad and could be easily misunderstood. For example, a manager tasked with making “important decisions” that impact the company may be considered a Beneficial Owner, even though they own zero shares of the company! FinCEN does not clearly define what an “important decision” is.
Yes, you could be considered to have a “Beneficial Owner Interest” without actually owning any of the company. This can become extremely complex when there are multiple companies operating as subsidiaries under parent companies.
Adhering to the reporting deadlines is crucial. As of January 9th, 2024, entities formed before January 1, 2024, must file their initial reports by January 1, 2025. For entities created after this date, the reporting must be done within 14 days of receiving their entity identification number.
Failing to comply can lead to significant consequences. Penalties for not filing or incorrect filing include fines of up to $10,000 and imprisonment for up to two years.
With the onset of a new law and compliance requirements, we anticipate a flood of scammers to enter the arena. While none have been reported as of this writing, we suspect that scammers will pose as FinCEN by sending forms to business to fill out, or pretending to be a filing service for the purpose of collecting PII (Personally Identifiable Information) from unknowing business owners. Protecting your PII is as vital as financial compliance. Always verify the legitimacy of any communication claiming to be from FinCEN or related to BOI reporting. Businesses who delay filing and wait until the 11th hour will be the most at risk of fraudulent activity. I highly recommend business owners contact their CPA, attorney, or private wealth advisor for guidance on how to best prepare for the new landscape.
At Silvertree, we understand that manufacturing is the backbone of our country, and we are dedicated to serving those who keep this sector strong. Our team is here to help you make smart decisions with your money, including staying compliant with regulations like CTA and BOI reporting. By staying informed and vigilant, you can protect your business, your assets, and your legacy from both legal complications and fraudulent activities. Remember, safeguarding your financial information is as important as growing it.
About the Author
Jason Glisczynski, CPWA®, CFP®, CAS®
CERTIFIED FINANCIAL PLANNER™ Professional
Jason specializes in helping individuals with planning for retirement and has nearly 20 years of advisory experience, is a Certified Private Wealth Advisor® professional, CERTIFIED FINANCIAL PLANNER™ professional, an Investment & Wealth Institute® member, and author of the International Best Selling Book Planning with Purpose: Solving Your Unique Retirement Puzzle.
Jason Glisczynski is co-owner and principal advisor for Silvertree, LLC. Investment Advisory Services are offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC and BCM are separate companies.