Key Points

• The Corporate Transparency Act of 2021 requires many companies to provide beneficial ownership information by January 1, 2025, in an effort to curb crime through shell companies.
• According to federal estimates, about 32.6 million businesses are subject to the new BOI reports.
• Individuals who “intentionally” violate the requirement may be subject to fines of $10,000 or more and possible jail time.
• A federal court in Texas temporarily suspended enforcement of the law.

Small businesses and their owners could face fines of $10,000 or more if they don’t comply with a new U.S. Treasury Department reporting requirement by the end of the year, and evidence suggests many still haven’t.

The Corporate Transparency Law, approved in 2021, created the requirement. The law aims to curb illicit finances by asking many companies operating in the US to report beneficial ownership to the Treasury’s Financial Crimes Enforcement Network, also known as FinCEN.

Many companies have a deadline of January 1, 2025 to file an initial Beneficial Ownership Information Report.

This applies to about 32.6 million businesses, including certain corporations, limited liability companies and others, according to federal estimates.

The Treasury Department did not respond to CNBC’s request for comment on the number of BOI reports that have been filed to date.

The data helps identify people who directly or indirectly own or control a company, making it “more difficult for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” according to FinCEN.

“Corporate anonymity enables money laundering, drug trafficking, terrorism and corruption,” Treasury Secretary Janet Yellen said in a January announcement about the launch of the BOI portal.

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Here’s the catch: Businesses and property owners who don’t file can face civil penalties of up to $591 per day for each day their violation continues, according to FinCEN. That sum is adjusted for inflation. Additionally, they can face up to $10,000 in criminal fines and up to two years in prison.

“For a small business, you’re suddenly facing a fine that could sink your business,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and founding member of Moisand Fitzgerald Tamayo.

The federal government had received about 9.5 million filings as of Dec. 1, according to statistics FinCEN provided to the office of Rep. French Hill, R-Ark., who called for repealing the Corporate Transparency Act. Hill’s office provided the data to CNBC.

That figure is about 30% of the estimated total.

FinCEN was receiving a volume of about 1 million new reports per week in early December, Hill’s office said.

Many businesses may not be aware

A “beneficial owner” is a person who owns at least 25% of the ownership interests in a company or has “substantial control” of the entity, according to FinCEN.

Companies must provide information about their beneficial owners, including name, date of birth, address, and identification information such as a driver’s license or passport, as well as other information.

Companies that existed before 2024 must report by January 1, 2025. Those created in 2024 have 90 calendar days from their effective date of incorporation or registration to file; those created in 2025 or later have 30 days.

Corporate anonymity enables money laundering, drug trafficking, terrorism, and corruption.

There are multiple exceptions to the requirement: for example, those with more than $5 million in gross sales and more than 20 full-time employees may not need to file a report.

Many exempt businesses (such as large corporations, banks, credit unions, tax-exempt entities, and utilities) already provide similar data.

Brian Nelson, the Treasury Department’s undersecretary for terrorism and financial intelligence, said in an interview at the Hudson Institute in February that the agency was “in full pressure” to raise awareness about the BOI registry, which opened Jan. 1. .

But it appears that many business owners do not comply with the requirement or are unaware of it, despite outreach efforts.

The scope of national compliance is “grim,” the S-Corporation Association of America, a trade group, said in early October.

The “vast majority” of companies had not yet filed a report, “which means that millions of small business owners and their employees will become de facto criminals by early 2025,” he said.

But it appears that many business owners do not comply with the requirement or are unaware of it, despite outreach efforts.

The scope of national compliance is “grim,” the S-Corporation Association of America, a trade group, said in early October.

The “vast majority” of companies had not yet filed a report, “which means that millions of small business owners and their employees will become de facto criminals by early 2025,” he said.

Enforcement is up in the air

However, the situation is not so bleak, others said.

For one, a federal court in Texas on Dec. 3 temporarily blocked the Treasury Department from enforcing BOI reporting rules, meaning the agency cannot impose sanctions while the court conducts a review. more exhaustive of the constitutionality of the norm.

“Companies should still archive their information,” said Erica Hanichak, director of government affairs at the Corporate Transparency and Financial Accountability Coalition. “The deadline itself has not changed. “It just changes the application of the law.”

The government is expected to appeal and the execution “could resume” if the court order is overturned, lawyers at the Fredrikson law firm wrote.

Additionally, Treasury said it would only impose sanctions on a person or company that “willfully violates” the BOI’s reporting requirements.

The agency is not looking to “enforce the law,” Hanichak said.

“FinCEN understands that this is a new requirement,” FinCEN said in an FAQ. “If you correct an error or omission within 90 days of the original report due date, you can avoid being penalized. However, you could face civil and criminal penalties if you fail to comply with your obligations to submit beneficial ownership information.”