The Corporate Transparency Act (CTA) imposes a new requirement on US citizens who own an LLC. What happens if you inadvertently violate this new law? You could end up behind bars.
The CTA requires people with “substantial control” over a company or an equity position of 25 percent or more to disclose their personal data to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), a government office most Americans have never heard of.
For as long as I can remember, millions of law-abiding citizens have turned to LLCs to invest in real estate or simply to protect their assets. In fact, it is estimated that over 32 million business entities are affected by this law. Instead of focusing on the success of their businesses, owners are left to deal with unnecessarily complex regulations.
What a grave example of government overreach!
Let’s look at the guidelines: Americans who are required to file a CTA tax return must report their name, date of birth, address, and a scanned copy of their government-issued photo ID to the Treasury Department. Any time this information changes within thirty days, it must be sent to the FinCEN database.
Failure to file information with FinCEN could result in a criminal penalty of up to two years in prison and civil penalties of up to $10,000 per violation.
Okay, let me get this straight: You can cross the border illegally, get money, plane tickets, cell phones, to name just a few of the benefits that the millions of illegal immigrants in this country have, but if you dare not reveal personal information, including government-issued identification, you, as the controlling members of an LLC, could be fined or even spend time in prison. So much for the American dream!
What is the reasoning behind the federal government demanding this information? The CTA was intended to crack down on shell companies that are used to commit crimes. Do they really think that those who break the law are going to comply with this new law and file their documents with FinCEN? Of course not. The law will simply impose a huge administrative burden on millions of hard-working American entrepreneurs. As usual, instead of going after the few who break the law, the entrepreneurs who do everything they can to prosper are punished.
Who started this?
The legislation was sponsored by Oregon Sen. Ron Wyden and former Rep. Carolyn Maloney of New York and was included in the Fiscal Year 2021 National Defense Authorization Act. Following a veto by then-President Trump and a subsequent Congressional override vote, the bill was signed into law on January 1, 2021, and took effect this year.
Since Washington let it slip through the cracks, few Washingtonians and most people outside Washington are unaware of the law’s existence. They certainly aren’t aware of the severe criminal penalties associated with violating it.
What does this mean for small businesses? It means that the average person has to deal with all the red tape. LLCs with more than 20 employees and more than $5 million in revenue do not have to file with FinCEN. Where can they turn?
The small percentage of small business owners who are aware of the CTA seek out compliance advice, but have few places to turn. Law and accounting firms do not want the exposure of filing returns for clients, and many small business owners are unaware of the repercussions associated with failure to file returns.
This leaves the door open for abuses by the IRS and prosecutors, whether for political or simply personal reasons. The last thing we need is the CTA placing bad actors in our justice system.
To add insult to injury, FinCEN has done little to nothing to educate Americans about the CTA and the harsh consequences of non-compliance.
U.S. Senator Tommy Tuberville is introducing the Big Brother Overreach Act to repeal the CTA in its entirety. His bill would provide millions of American small businesses and entrepreneurs with regulatory and compliance relief and remove a weapon for political persecution by corrupt prosecutors and the IRS.
If Congress fails to act on this legislation, millions of American small business owners could be in for a nasty surprise next year.
Laura Johnston Clark is a wife, mother, and businesswoman. She grew up in the Wiregrass and now lives in Birmingham with her husband, retired Air Force Col. David Etheredge. She is a member of the Alabama Republican Party.
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