Bradley partner Bruce Ely was quoted in 1819 News on how Alabama small business owners will be required to share ownership information about their companies or risk being subject to civil and criminal financial penalties or imprisonment under a new federal law called the Corporate Transparency Act, which went into effect on January 1, 2021.
Ely said, “Companies formed in 2024 have 90 days to file their report with FinCen, companies formed in 2025 or after will only have 30 days to file, and companies already in existence before January 1, 2024 have until December 31, 2024 to file.”
“Thus, there is no Grandfather Exception. And if any of the reported information changes – including just their street address or maybe Dad gives some of his stock to his daughter or a grandchild – they must notify FinCEN within 30 days of the change. How many businesses will remember to do that, or to notify their CPA or attorney and ask them to file the form? There are both civil and criminal penalties for non-compliance. If there is a ‘willful’ (whatever that means) failure to file the form or if false information is reported, there is a civil penalty of up to $500 per day and a potential criminal fine of up to $10,000 and possible imprisonment for up to 2 years,” Ely explained.
“The practical issue is who will take responsibility for filing the initial form and for monitoring the company and its owners in case they need to file an update? Most small businesses don’t have the time or expertise and will assume their CPA will handle this, while some will assume their favorite law firm will do so. That will often be the case if they engage an attorney to form a new LLC or corporation for them. Assuming they are even aware of these new rules, they might blissfully assume the new BOI form will be part of the stack of documents they are being asked to sign, unless the attorney warns them that he or she is not handling that filing,” he said.
“Many CPAs reportedly are skeptical about taking on this responsibility, either for fear that the filing will be incorrect or late or the owners will be offended by all the questions, or possibly this is the ‘unauthorized practice of law’ in some states and they can’t take on that role even if they want to,” Ely added. “There are a lot of questions to be answered by FinCEN now that Congress has, by silence or conscious inaction, allowed the CTA to go into effect after several delays. Both law and CPA firms across the country are scrambling to educate themselves as well as their clients, and a new cottage industry of (Corporate Transparency Act) service firms is popping up.”
The ownership information sent to FinCEN won’t be public information but could be disclosed to the IRS, law enforcement, or national security and intelligence agencies.
“This is a big change for small businesses since they probably don’t qualify for one of the 23+ exemptions, such as being a publicly-traded company, a financial institution or investment brokerage firm, or a non-profit organization. By default, many if not most small businesses are the ones that won’t qualify for an exemption,” Ely said.
The full article, “Hundreds of thousands of Alabama businesses required to disclose ownership information under new federal law or face fines, jail time,” was published in 1819 News on January 22, 2024.