With just a month to go before the Corporate Transparency Act’s reporting requirements take effect, it’s abundantly clear – not to mention extremely worrying – that federal regulators simply do not have their act together when it comes to implementing the new law.
Recognizing this, the Main Street business community today called on lawmakers to delay the Corporate Transparency Act’s reporting requirements by one year, which would give the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) enough time to finish its work on the regulatory and education fronts.
The letter, which was signed by 70 trade associations including the National Federation of Independent Business, the Real Estate Roundtable, and the Associated General Contractors, points out two key items of unfinished business:
Of the three primary rules necessary to implement the new law, only one has been completed, the second is still at the “proposed” stage and needs to be finalized, while the third has yet to be released even as a proposed rule. FinCEN’s leadership has assured Congress they are ready to go starting next year but that is clearly not the case.
Meanwhile, FinCEN is woefully behind when it comes to educating stakeholders of their new obligations. A National Federation of Independent Business survey found that 90 percent of respondents were entirely unfamiliar with the reporting requirements. The CTA includes civil and criminal penalties of up to $10,000 and two years of jail time for failing to comply, so this lack of awareness is alarming and needs to be addressed before the law is implemented.
Starting next year nearly every small business in America will be required to report – and continuously update – a litany of personal information regarding their beneficial owners. The scope of the mandatory reporting is well beyond anything we’ve seen outside of the Tax Code, yet FinCEN doesn’t have all the rules in place to govern how this sensitive information will be used.
To add insult to injury, the AICPA recently pointed out that FinCEN has significantly underestimated the cost burdens associated with the new reporting regime, it has relied on vague and arbitrary standards in laying out the criminal and civil penalties under the statute, and it has implemented filing deadlines for newly-formed entities which, in some cases, are impossible to meet.
We’ve seen Treasury delay a major reporting regime before. Just last year, the IRS was unprepared to implement the lower 1099-K reporting thresholds and announced a one-year pause. FinCEN faces a nearly identical scenario with the CTA yet appears determined to plow forward regardless.
S-Corp’s preferred approach to the CTA is to repeal it altogether and we continue to support the NSBA’s constitutional challenge which would put this harmful law to rest. But with an effective date fast approaching, Congress and federal regulators need to accept that the CTA is just not ready for prime time.