Treasury’s new rule for small businesses: They’re taking names

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The US Treasury Department released a final rule that would create a new database of personal property information that about 32 million small businesses must submit.

The rule aims to make it “more difficult for criminals, organized crime networks and other illicit actors to hide their identities and launder their money through the financial system”, according to the Treasury.

But some experts say the rule, which requires additional guidance, can be cumbersome and costly for legitimate small businesses.

“We agreed with the general spirit of the rule, but we also wanted to do it in a way that minimized the burden on small businesses,” says Will Gardner, Washington-based policy director at the House of Commons Center. United States trade. for the competitiveness of capital markets.

In January 2021, Congress passed the Corporate Transparency Act, which was intended to improve the fight against money laundering in the United States, he says. The legislation directs the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to create a new federal database requiring certain companies to report their beneficial owners and entity applicant companies, says Gardner, who provides more information on https://tinyurl.com/yyjw4msa. See https://tinyurl.com/5y5hbmcc for the definitions of beneficial owner and claimant.

Among those exempted, according to Bernadette Kasnicki, an attorney at Rivkin Radler in Uniondale, are entities that:

  • employ more than 20 full-time employees in the United States, and
  • have an operational presence in a physical office in the United States, and
  • have filed a federal income tax or information return for the preceding year showing more than $5 million in gross receipts or sales, excluding gross receipts or sales from sources outside the United States.

This rule would therefore primarily affect small businesses like corporations, LLCs and limited partnerships with fewer than 20 employees, she says. Kasnicki goes more in-depth at https://tinyurl.com/ruwyjvrj.

Bernadette Kasnicki, a lawyer at Rivkin Radler in Uniondale.
Credit: Laurie Bloom

That can be a burden on those small businesses because of the cost and time it takes to meet the requirements of the rule, which goes into effect Jan. 1, 2024, Gardner says.

Treasury officials said the cost for most businesses with simple ownership structures should be nominal — about $85 per business to submit an initial report. This estimate reflects the value of the company’s time spent providing the necessary documentation and information.

Gardner is among the experts who question whether that modest estimate is entirely accurate, noting that some companies may need to hire professionals to help them prepare the report.

Christine Malafi, senior partner and chair of the corporate department at Campolo, Middleton & McCormick LLP in Ronkonkoma, agrees, noting that “many small businesses don’t have their corporate books in order.”

And while “the purpose of the rule is laudable, I’m not sure people who intend to launder money through a shell company are going to report that they are involved in the businesses” , she says.

Christine Malafi, senior partner and president of the corporate department...

Christine Malafi, senior partner and chair of the corporate department at Campolo, Middleton & McCormick, LLP, in Ronkonkoma.
Credit: Nicole Rochelle Photography

Malafi also expressed concern about the security of the information submitted, which includes name, date of birth, address and a unique identification number of the beneficial owner of a document such as a passport or license.

The new BOSS

According to Treasury officials, however, the information will be uploaded to a secure online portal, the Beneficial Ownership Secure System (BOSS), which the Treasury is building.

FinCEN will develop compliance and guidance documents to help reporting companies comply with this rule. Existing companies will have until January 1, 2025 to file their initial reports, Malafi says.

Companies created or registered after January 1, 2024 will have 30 days after receiving notice of their creation or registration to file their initial reports.

Treasury officials expect more guidance to be released throughout the year as they get feedback from small businesses on what would be most helpful.

Yet Ed McWilliams, a partner at Bohemia-based Cerini & Associates, a CPA and business advisory firm, predicted, “I anticipate that in 2024 we will be assisting many customers through this process.”

Ed McWilliams, partner at Cerini & Associates, based in Bohemia, a...

Ed McWilliams, partner at Bohemia-based Cerini & Associates, a CPA and business advisory firm.
Credit: Christopher Appoldt

Although, he pointed out, most businesses probably would have had to collect this information in “some form” to open a bank account at a financial institution.

For example, when he forms LLCs for clients, in order to open a bank account for the entity, he must provide the bank with a signed operating agreement, which lists the owners of the entity, he says. .

And, McWilliams said, several other countries already have similar databases, including Australia and the UK.

Although more information has yet to be released, companies should start thinking about their ownership structures and the documentation needed, Kasnicki says.

In particular, companies with complex beneficial ownership structures “should think about which names they will need to disclose – and do we have that information?” she says.

Fast facts:

In the first quarter of 2022, 90.5% of New York’s private sector employers had fewer than 20 employees, according to the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages. According to data from the New York State Department of Labor, in 2021 there were more than 73,000 businesses on Long Island with fewer than 20 employees.

Sources: United States Bureau of Labor Statistics and New York State Department of Labor.

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