New Anti-Fraud Requirement Coming for Small Businesses

A massive new filing requirement designed to crack down on shell companies and fraud is coming for certain small businesses with fewer than 20 full-time employees or less than $5 million in revenue.

It’s relatively easy to set up legal entities in the U.S., and it’s also rather anonymous to do so, with a minimal amount of information required in many states. For these reasons, the U.S. is home to tens of millions of corporations, limited liability companies, partnerships, and trusts. Most of these entities, of course, are law-abiding. Some are not. The federal government doesn’t have an effective system in place to help law enforcement identify who owns and operates these entities as suspicions of fraud arise. That’s where the new Corporate Transparency Act (CTA) enters the picture.

The CTA was passed in 2021, but plans for enforcement are just now coming together. The Financial Crimes Enforcement Network (FinCEN) issued proposed regulations outlining reporting requirements in December. The comment period has since closed, and now we wait. In the meantime, it’s critical for certain small business stakeholders to understand how the reporting requirements may affect them and their entities.

“Although the CTA was intended to make it more difficult to operate anonymous shell companies for criminal or tax evasion purposes, the broad net it casts means that, for the first time in history, there are now federal reporting requirements for small companies that will require the annual collection and reporting of ownership information,” the National Law Review points out.

The requirement sweeps in those small businesses that have otherwise escaped strict reporting regulations: entities with fewer than 20 full-time employees or that report revenues less than $5 million, for instance. These applicable businesses must disclose the names, addresses, and other identifying information of their beneficial owners for inclusion in a FinCEN database accessible to law enforcement. Loosely defined, beneficial owners are those who either exercise substantial control over the company or with at least 25% ownership interest.

Specifics within these parameters aren’t yet set. For instance, FinCEN proposes that the reporting company include the residential address for tax residency purposes of each beneficial owner instead of their business address. FinCEN has also floated the idea of requiring the submission of scanned images from beneficial owners and company applicants to further prove their identities.

What about entities with trust ownership? Those owners are included, too. Foreign trusts are no exception.

“It is clear that FinCEN views the use of trusts with some skepticism…The new law will have an impact on any entity with an ownership interest in a U.S. company, including foreign trusts. Under the proposed rule, reporting companies must report to FinCEN each owner that owns more than 25% of the company, including trusts, regardless of where the trust is domiciled and whether it is registered with any secretary of state,” Attorney Ian Herbert states in Bloomberg Tax. “In its proposed rule on beneficial ownership reporting, FinCEN said that it considered a narrower reporting requirement for trusts that would have required trusts to report only the trustee as the beneficial owner but concluded that doing so ‘would promote the misuse of trusts to hide beneficial ownership interests and complicate the ability of reporting companies to comply with the CTA and the proposed rule.’”

As we await a final rule, take a moment to ask your legal team and financial adviser about how the requirement may affect your business. Feel free to contact us with questions.

Photo from 123rf.com

July 26, 2022

Client Spotlight

A terrifying home invasion involving men with masks and guns set Pam Wood on an unexpected path to business ownership in 1981….
What happens when you combine a passion for creating, a knack for business, and deep family values? For Scott Klingler, owner of MergeWorks, it resulted…
Bessie M. Irizarry loves embracing a good challenge. It’s one of the many reasons she’s earned respect as a female engineer and business owner in…
San Antonio native Mark Lopez can’t recall a time he didn’t envision himself following the footsteps of his father, a project manager, into the construction…
Siew Pang knows that the key to unlocking the American dream can be discovered by embracing unexpected opportunities….
If you’re a San Antonian, you may not want to imagine your weekend without brunch at the city’s beloved Magnolia Pancake Haus….
Greg Thompson has long respected money and how it can catalyze greater things….
You may not be aware of it, but Don Lasseter has helped you throw a party. How do we know that? He’s the franchise owner…
Land surveyors aren’t known for exceptional customer service. But why shouldn’t they be? David Breaux set out in 1998 to prove that treating customers right…
When Lance Rose sees a business need, he fills it. That’s how he and Terri, his wife of 30 years, have evolved into the proud…
Matt and Lara Bruhn met while in graduate school at Harvard. He served as an officer and F-15C pilot with the U.S. Air Force….
Growing up in Piedras Negras, Coahuila, Mexico—just south of Texas along the Rio Grande—Oscar E. Flores dreamed of becoming a designer….

Blogs and Articles

Proving Economic Damages Through Forensic Accounting

Forensic accountants play a crucial role in proving business economic damages in litigation. They combine investigative skills, financial expertise, and litigation support experience to quantify...

Proving Economic Damages Through Forensic Accounting

Read More

One Big Beautiful Tax Bill: Areas of Interest for Domestic Businesses

The domestic business portion of the Trump Administration’s One Big Beautiful Bill (OBBB) includes a handful of changes for small- and medium-sized businesses, affecting bonus...

One Big Beautiful Tax Bill: Areas of Interest for Domestic Businesses

Read More

Incorporating in Texas

Incorporating a business is an important step that comes with many considerations. One in particular: Where should the company be incorporated? Delaware has long been...

Incorporating in Texas

Read More

Online Betting and Your Taxes

As fall sports kick into gear, you may be tempted to try your hand at sports betting. But Texans, in particular, should keep the following...

Online Betting and Your Taxes

Read More

Working on Vacation: Tax Tips and Implications 

Working remotely during a vacation or business trip can offer flexibility, but it also brings unique tax implications. It’s important to understand where business deductions...

Working on Vacation: Tax Tips and Implications 

Read More

$125,000 Business Inventory Tax Exemption Heading to Texas Voters

$125,000 Business Inventory Tax Exemption Heading to Texas Voters

Read More

Beware of Modern Ponzi Schemes

We’ve entered a new era of Ponzi schemes. A record number of the scams have been estimated in 2023 alone, an amount that doubled in...

Beware of Modern Ponzi Schemes

Read More

Bankler Partners, LC, Expands into a New Name and Space

This is a pivotal moment for our firm. The transformation to Bankler Partners and move to our new, modern space represents our dynamic growth and...

Bankler Partners, LC, Expands into a New Name and Space

Read More

Digital Assets and Your Taxes

You may have reveled in the Wild West days of cryptocurrency and other digital assets, but we’re entering an era of meticulous record keeping and...

Digital Assets and Your Taxes

Read More

The Goldilocks Rule for Tax Withholding

If you’re like half of Americans this year, you are more dependent on your tax refund to pay for necessities than you have been in...

The Goldilocks Rule for Tax Withholding

Read More

How Inherited Assets Affect Your Taxes

Inheriting assets can be a financial blessing, but it also raises essential tax questions that many heirs overlook. How you manage those assets can have...

How Inherited Assets Affect Your Taxes

Read More

Getting Hit by Someone Else’s Bankruptcy

Finding out that another business or individual who owes your business money has declared bankruptcy can feel like a kick to the stomach....

Getting Hit by Someone Else’s Bankruptcy

Read More

Welcome to Texas: Cutting Tax Ties with Your Previous State

San Antonio is currently one of the fastest-growing metro areas in the nation. If you’re among our new residents, welcome! Before you enjoy the tax-friendly...

Welcome to Texas: Cutting Tax Ties with Your Previous State

Read More

Reaching the Unreachable IRS

Reaching the IRS has always been challenging. With the IRS workforce reduction continuing, many believe your odds of reaching a warm body to resolve a...

Reaching the Unreachable IRS

Read More

How Is Costco Gold Taxed?

Gold, silver, and other precious metals have emerged as standout assets in today’s unpredictable economy due to their ability to remain somewhat independent from stock...

How Is Costco Gold Taxed?

Read More

Now Accepting New Clients

Let’s Start the Conversation

Let’s take a look at your finances together. We offer a complimentary 1-hour call to review your past tax returns. If we see a way to help you, we will.