As a small business that supports other small businesses, we get pretty fired up when the government makes changes that have the potential to screw us over. Enter the Corporate Transparency Act (CTA).
If you haven’t seen Kim’s recent article on this, the CTA requires every small business in the country to provide their personal information to the federal government. It can lead to fines and even imprisonment for noncompliance if they don’t. In a world where small business owners are already at a disadvantage and constantly overburdened, is this really the message we want to send them?
So, why do we have the CTA? How does it impact small businesses? And what are people doing about it? Let’s dive in.
Why The CTA Exists
The Corporate Transparency Act is our lawmakers’ attempt to combat money laundering, corruption, tax fraud and other illegal financial activities. According to the Department of Treasury, the law, “will equip law enforcement and other partners with the information they need to disrupt financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism.”
We won’t sugarcoat it – unfortunately, there is an abundance of malpractice and fraud in the world of digital business. While we applaud the effort to right these wrongs, the implementation of the CTA has given fraudsters new ammunition to continue rather than hindering them. Scammers are currently taking advantage of the lack of knowledge about this new compliance and fraudulently soliciting information from small businesses.
The State of Michigan says scammers have been sending fraudulent letters and emails to small business owners with a title like ‘Important Compliance Notice’, asking them to click on a URL or to scan a QR code.
We can’t repeat this enough: do NOT do that. It’s a scam.
In order to comply with the CTA, you’ll need to fill out a Beneficial Ownership Information report and send it to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). You can do so directly through the FinCEN website by using their BOI E-Filing System.
Cost of Compliance
Due to their limited resources, small businesses may find it difficult to keep up with the cost of compliance, making mandates like the CTA detrimental to their operations and growth. The National Small Business Association surveyed small business owners before the law took effect and found that half of those surveyed didn’t even know what CTA was. Another quarter said they didn’t know if they’re required to report and that compliance with the law would cost businesses about $8,000 on average. There is no means of escape from this financial burden however, as failing to comply–whether intentional or not–could invoke up to a $10,000 fine.
We feel that mitigating fraud shouldn’t require punishing our small businesses with thousands in extra overhead or non-compliance fees. With many small businesses finally finding a post-COVID foothold in our ever-inflating economy, laws like these that are concerning for the future of our small business base. Mandates like these quietly taking shape and going into effect is also why it is so important to stay informed, speak out and take action.
Legal Challenges
Action is exactly what business owners and business groups across the country have taken. There have now been four lawsuits challenging the constitutionality of the CTA.
The National Small Business Association (SBA) and a small business owner sued the Treasury Department in November 2022, arguing that the law violates privacy protections and is a burden on reporting companies. In March of this year, the federal district court in Alabama ruled in their favor, finding the law unconstitutional. There have also been legal challenges moving through courts in Maine, Michigan and Texas.
Ultimately, the CTA has raised concerns among small businesses due to its compliance burdens and potential fines. The outcome of these legal battles will impact the future of small businesses and the regulatory environment they operate in. Not only that, but it could force our lawmakers to come together to create a solution to the issue of fraud that doesn’t hurt what they call “the backbone of America.”
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