You take a chance getting up in the morning, crossing the street, or sticking your face in a fan. – Frank Drebin in “The Naked Gun”
Three years ago our beloved Congress slipped a new law through, hidden inside another law which wasn’t even related to the same topic, called the Corporate Transparency Act. When people see the name, they generally assume it has some relationship to big corporations with billions of dollars and offices on Wall Street, so they don’t have to worry about it. Actually it is the opposite; big companies are exempt from the law. This new law actually applies instead to a lot of really small businesses.
This new law says that by the end of 2024, most small businesses are required to file an ownership report with a federal agency called the Financial Crimes Enforcement Network (or FinCEN). At first, they were calling this report by an acronym that came out to BOSS, but somewhere along the way the public relations people convinced the higher-ups that was a bad acronym, and they changed it to BOI for Beneficial Ownership Information report.
And yet here we are, almost at the end of 2024, and I still don’t know whether to tell clients to file a BOI. Because here’s what happened.
Earlier this year an organization called National Small Business United filed a lawsuit, arguing that the new requirement was unconstitutional. And they actually got a federal judge in Alabama to agree with them.
But what usually happens in these situations is that the judge issues a “nationwide injunction” which prevents the federal government from enforcing the law. In this case, and I don’t know why, the judge didn’t do that. He only made the ruling effective as to the members of NSBU. The feds can enforce it as to everyone else.
Of course the federal government doesn’t really like it when a judge rules that a law it likes is unconstitutional, so the government is appealing the case to the 11th Circuit. They had an oral argument but I don’t know whether a decision will be issued before the end of the year. And even if they do declare that the law is unconstitutional, that only applies to a handful of states that are covered by that circuit. The rest of us would still be legally required to file a BOI if we have a small business.
There are a lot of details as to who is required to file. Bigger companies don’t have to file. Sole proprietorships don’t have to file. Nonprofits don’t either. Trusts don’t have to file, but if the trust owns an LLC then the LLC has to file. If you have anything in an LLC or corporation, even just a few bucks in an account that you use for your occasional side hustle, you are covered by this law.
Part of the problem is that most people who have these small businesses haven’t even heard about the law. You, of course, have because you are reading this column. So having heard about the requirement, should you go ahead and file? Or should you just wait until next year to see whether the law gets overturned?
This kind of question doesn’t have an easy answer. Chances are, because of the anticipated massive noncompliance, the federal government will not actually charge or fine a lot of small businesses. But they could.
The penalties for noncompliance, by the way, are $591 per day, with a cap of $10,000, and up to two years in prison.
In order to make this decision, I suggest you consider three factors: 1) what are the odds of getting hit with a penalty, 2) how bad will the penalty be if you are hit, and 3) what will you lose by complying? I am suggesting this method of making the decision on the assumption that you don’t have some moral or philosophical objection to filing the report, and are making the decision on purely practical grounds.
Chances are you won’t get penalized, because there will be so many small businesses that don’t file. But there is some chance. It may not be the maximum penalty, but it is entirely possible that, in order to scare other people into filing the report, the feds may just decide to whack a few people on the nose to get everyone else’s attention.
You can see what the penalties are if you do get hit, and they are pretty significant. But what does it cost to do this? Some people are going to want to get the help of an accountant to file the report, but most folks can do this on their own. The government does not charge a fee for filing. It does mean that your ownership information will be available to certain federal agencies, although in Alaska, most of that is available anyway through the state corporations division.
So unless you really have something to hide, at this point I am going to come down on the side of filing your report. But I will leave that decision up to you.
Kenneth Kirk is an Anchorage estate planning attorney. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. Let’s hear it for the BOI! Or not.
