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More than 40 lawmakers have written to the US Treasury to ask for a delay on new reporting requirements related to beneficial ownership information (BOI).
The lawmakers, who are all House Republicans, said the rules are “complex” and that most firms are still unaware of them, despite the imminent deadline for compliance.
They have called for the deadline to be extended, at a minimum, beyond January 1, 2026 for existing firms.
“Without a delay in the effective date, millions of America’s smallest business owners will be deemed out of compliance, and subject to fines up to $250,000 and even jailtime,” the lawmakers wrote.
The BOI reporting requirements are implemented by the Treasury’s Financial Crimes Enforcement Network (FinCEN) and are authorised under the Corporate Transparency Act (CTA).
The CTA was enacted in 2021 with bipartisan support, but only came into effect on January 1 this year.
In an effort to prevent the use of US companies in illicit finance, the CTA imposes beneficial ownership reporting requirements on almost all companies that do business in the US.
If a company is in scope, the individuals who own or ultimately control it are required to declare their identities to FinCEN.
Generally, reporting companies must provide the names, dates of birth, addresses and a valid government-issued ID number of each beneficial owner.
Existing companies must report to FinCEN by January 1, 2025, while newly created companies must report within 90 calendar days of registering themselves as a company.
The lawmakers point out that the CTA intends to target shell corporations engaged in illicit transactions, but covers all legal entities with less than $5m in revenue and fewer than 20 employees.
“In other words, every small business in the United States,” they said.
Failure to comply can result in fines of more than $590 per day, felony charges and up to two years' imprisonment.
FinCEN estimates that more than 32m firms will be affected by the rules this year, with an additional 6m in each subsequent year as new businesses are formed.
Firms not responding to FinCEN
Although BOI filing under the CTA began at the start of this year, FinCEN has disclosed that so far it has received only 10 percent of the required submissions.
“This compliance rate can be attributed directly to the general lack of awareness among the small business community when it comes to the new rules,” the lawmakers wrote.
“Given this massive education gap, it is clear additional time is needed for regulators and other stakeholders to continue their outreach to affected small businesses.”
The lawmakers also note that a postponement of the compliance deadline would be “in line with Congressional intent”.
They point out that Congress previously called for a reporting deadline for existing firms of “not later than two years” after the BOI requirements came into effect in January 2024.
Instead, FinCEN mandated a one-year deadline of January 1, 2025 — an “unrealistically short window with which to educate America’s small business community”.
Although the lawmakers questioned the CTA on other grounds, they limited their current demands to a delay in the enforcement of the BOI reporting rules.
Industry support for one-year extension
So far, the lawmakers’ letter has drawn support from several key industry groups and associations.
Last week, the Association of International Certified Professional Accountants (AICPA) wrote a similar letter to the heads of the Senate Banking Committee and the House Financial Services Committee.
Expressing “grave concern” about the complexity and the deadline of the BOI requirements, the AICPA also called for enforcement to be suspended for at least one year.
“With 6.5m reports received of 32m expected this year, millions of small businesses are closing in on the end of the year, at which point they will be conflicted with federal law,” the association wrote.
“To experience 316 days of non-compliance for 23.5m small businesses demonstrates the problem is not with the small business community or their trusted financial professionals: the problem is with the program.”
Quoting FinCEN’s description of the BOI filing process as “simple, secure and free of charge”, the AICPA highlighted that the agency’s FAQs page on the requirements now includes 122 questions.
The AICPA also noted that it has the support of 54 state-level certified public account (CPA) associations.
Nonetheless, other sources believe that the proposed delay is extremely unlikely.
Jonathan Wilson, co-founder of FinCEN Report Company, told Vixio that a delay in enforcement is “not going to happen”.
“FinCEN will let the deadline pass and then give late filers a safe harbour to file and avoid penalties,” he said.
“From a regulatory point of view, it would be more efficient to let the current deadline run and then offer a second chance for late filers. Extending the deadline will only induce more procrastination.”
