#29 - Suspension of Beneficial Ownership Filing Requirements

A federal court in Texas issued a preliminary injunction suspending the enforcement of the new beneficial ownership reporting requirement. While this ruling provides relief for small business owners, it is TBD whether the reporting requirement will be rescinded or reinstated. In this brief update episode Greg Reed, head of tax at SmartBooks, shares his thoughts and recommendations around this issue.

Reach Greg Reed at smartbookstax.com or greed@smartbookstax.com.

Thanks for listening!

Host Cal Wilder can be reached at:
cal@empoweringhealthybusiness.com
https://www.linkedin.com/in/calvinwilder/

Transcript

Moderator: 0:01

Welcome to the Empowering Healthy Business Podcast, the podcast for small business owners. Your host, cal Wilder, has built and sold businesses of his own, and he has helped hundreds of other small businesses, whether it is improving sales, profitability and cash flow, building a sustainable, scalable and saleable business, reducing your stress level, achieving work-life balance or improving physical and emotional fitness. Cal and his guests are here to help you run a healthier business and, in turn, have a healthier life.

Calvin: 0:35

Welcome back to the show, Greg.

Greg: 0:37

Thanks for having me. We have some important updates, and I should have worn my party hat today.

Calvin: 0:42

Why is that?

Greg: 0:44

So on Tuesday, december 3rd, a federal court in Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act and its beneficial ownership reporting requirements. I was on a few weeks ago talking about beneficial ownership requirements and what that entails. I know we sent out a few notices about that. So now that has been halted, the court ruled that it likely violates the Constitution, claiming that it oversteps Congress's authority under the Commerce Clause and infringes on states' rights under the 10th Amendment. So this decision, just for now, suspends the January 1st 2025 deadline for compliance, providing some relief to small businesses that are facing significant reporting challenges and penalties. I will note that as of, I believe, the 1st of November first couple weeks of November, only approximately 25% of small businesses had actually reported anything. So there was still a significant amount of businesses that needed to do this reporting requirement and we're not really sure whether it's that they don't want to do the reporting or if they just didn't know about it.

Calvin: 2:05

Right, because this is not technically an IRS tax return. This is part of the Financial Crimes Enforcement Department under the Treasury.

Greg: 2:13

Correct, and I think a lot of people probably look at this and say that, oh, it doesn't apply to me, and they carry on Because a lot of these things don't apply to small businesses, but this, in fact, does Just a quick recap.

Calvin: 2:27

Right, this was not a tremendously long and detailed filing, but you had to report name, address of the business, right? And then the contact information and tax ID numbers for owners of the business who own more than a certain percentage of it. Is that right?

Greg: 2:44

Correct and I think the reporting itself is not hard. I think what is very scary to a lot of business owners is the penalties that come with it, which include not only fines but could also include jail time. So I don't think it would ever really come to that, but if you're just not aware of what's happening, but that is, um how it's written, so you know pretty significant penalties for not filing and the fact that you have to keep this updated as you operate. I think it's also important to note that on March 1st of this year, 2024, federal district court in Alabama also ruled that this was unconstitutional. Ruled that this was unconstitutional, stating the same thing that it exceeded Congress's authority to under the Commerce Clause. But that only applied to the plaintiffs in the case, which was the National Small Business Association, and then anyone involved included all the members at that time. So, it'll be interesting to see how that plays out, to see if that adds some fuel to this fire. But I think ultimately this is a win for now for small businesses, and we are expecting an appeal by the US Department of Justice and that could certainly shift the legal landscape again. So I think the key takeaway here is you can hold off for now, but stay informed and be ready to file if, in fact, this does get overturned again. Of course we're here to always help our clients make sure that they stay in compliance with all that.

Calvin: 4:36

Right, I mean this is somewhat scary with the fines and the jail time potential, for you know, on paper, if this is not sustained, you could basically thousands and thousands of dollars in fines and potential jail time if you change the address of your business and don't update your filing with the FinCEN department. Right, it's pretty scary.

Greg: 4:59

Change your last name, you get married, things like that that you probably wouldn't think about, yeah.

Calvin: 5:04

So we're going to stay on top of this and you know we'll provide an update and see what happens over the next couple of months, especially with the incoming Trump administration, if that changes things too.

Greg: 5:15

We'll see.

Calvin: 5:22

Reference show notes and find other episodes on EmpoweringHealthyBusiness. com. If you would like to have a one-on-one discussion with me or possibly engage SmartBooks to help with your business, you can reach me at Cal C-A-L at empoweringhealthybusiness. com or message me on LinkedIn, where I am easy to find. Until next time, t his is Empowering Healthy Business, the podcast for small business owners, s igning off.