Most 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.

The new requirement is known as the Corporate Transparency Act that was part of the National Defense Authorization (NDAA) for fiscal year 2021 passed on Jan 1, 2021 and went into effect on January 1.

The law doesn’t apply to any entity that (1) employs more than 20 full-time employees, (2) filed a federal income tax return reporting gross receipts exceeding $5 million, and (3) has an operating presence in the United States. 

Therefore, most of the burden to disclose ownership information to the federal government will fall on smaller businesses with fewer than 20 full-time employees and $5 million in sales. A list of other narrow exemptions can be found here.

Information that must be reported by small business owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) includes the beneficial owner’s full legal name, date of birth, residential or business street address, and unique identifying number such as a passport or driver’s license. A beneficial owner is an “individual who directly or indirectly (i) exercises substantial control over the reporting company or (ii) owns or controls not less than 25% of the ownership interests of the reporting company.”

Secretary of the Treasury Janet Yellen recently said the new information will make it easier for the federal government to detect money laundering. However, the law will be a new burden for about 32 million small businesses nationwide.

“I get what they’re doing. They’re trying to prevent the laundering of money.

It just sounds like a set up,” State Rep. Kerry Underwood (R-Tuscumbia), a certified public accountant, told 1819 News in a recent interview. “It is intrusive and intimidating and going forward from this point should there be a change of any kind, the individual and the company has 30 days to report that as well. So, does that mean an address change? If I sell my house and move somewhere could I have 30 days to report it or else I’m subject to the penalties? If we buy and sell stock…if I go from a 50% owner to a 40% owner and now I’ve got to remember to report that (and) I’ve got to remember to do that or I’m subject to these penalties. The going forward part is what bothers me really more than this, probably more. I think there will be ways and time enough for people to be aware of this but going forward who is responsible for remembering every single change that may happen in your life or for your company that you have to report. We’re busy man. It’s hard to remember to do everything as business owners and entrepreneurs. It’s just hard to remember that.”

Underwood continued, “First and foremost, the concern is making sure everybody knows to get it reported so they’re not subject to those penalties. There’s not many of us that want $500 dollars a day or $10,000 coming out of their pocket just because they didn’t tell them what their driver’s license number is.”

“We usually try to send as little as possible to any governmental entity of any kind. We send our numbers to prepare taxes. We don’t really want you to know anymore than you have to know. This is just more information out there but the penalties require it,” Underwood said.

Rosemary Elebash, the Alabama director of the National Federation of Independent Business, a small business trade organization, said in an interview she’s started hearing concerns about the new law. 

“This is aimed at small business. That’s what this is aimed at. They’re beginning to be worried about it,” Elebash said. “They’re just trying to focus on running their business everyday. Because of inflation and not being able to hire enough people to work, those have been the one and two most important problems for them now for months. This is just a new federal law that they’re going to have to comply with. It’s going to cost them money because they’ll have to file something and they’ll have to go to their CPA and get it done. It’s just another burden.”

Bruce Ely, a tax attorney and partner with the Bradley Arant Boult Cummings law firm, told 1819 News 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 said. “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.”

The Corporate Transparency Act beneficial ownership disclosure filings began on January 1 after some delays in implementation after it was passed in 2021.

“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 said. “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, 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.

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