Penalties for Noncompliance
Congress enacted the Corporate Transparency Act to combat the funding of terrorism, fraud, money laundering, mysterious foreign ownership of US businesses, and other financial illegality. The most sweeping federal law since the creation of the national income tax, the CTA requires almost all small businesses to file a Beneficial Ownership Information Report this year. To enforce compliance, Congress gave this law very sharp teeth by way of steep and harsh penalties to ensure that small businesses file their reports.
Penalties
The penalties for not filing on time, or filing inaccurate reports, are harsh:
- A civil penalty of $591 per day for each day the BOI report contains an inaccuracy or is not filed beyond the deadline!
- A criminal fine of up to $10,000!
- Imprisonment for up to 2 years!
Who is At Risk?
Financial penalties can be imposed on both the business and the officers, whereas the imprisonment would be of the senior officers of the business. While the CTA provides for a $500 per day penalty for noncompliance, it also builds in an inflation adjustment, and as of January 25, 2024, the civil penalty of $500 day was raised to $591 per day per the Department of the Treasury. This inflation adjustment will likely continue to raise this penalty as the months go by, making this penalty steeper and steeper.
Filing is Mandatory
Considering the financial penalties alone, a business that filed six months late would be immediately subject to a penalty of more than $108,153, plus a criminal penalty of up to $10,000 and a prison sentence for its senior officers of up to two years each. Filing in 2024 is mandatory, not optional, for businesses which want to avoid these penalties and senior officers who want to avoid the risk of imprisonment.
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Ignorance of the Law is No Excuse
The CTA applies these penalties to what it calls “willfully” failing to report complete or updated beneficial ownership information. Willfully, in this context, means intentionally failed to file something it knew it should have filed. However, US law is clear that ignorance of the law is no excuse, and the US Supreme Court specifically held in US v. International Minerals & Chemical Corp. that ignorance of a regulation or law published in through an official channel will not excuse noncompliance and a violation of that law can be deemed an intentional violation since the violating party was deemed to know what the law required. This is especially true when, as in this situation, the CTA and its requirements were published in the Federal Register, the official rules and notice publication of the federal government.
The Bottom Line
With every small business deemed to know this law, any noncompliance, whether it be a late filing or failing to update inaccurate information, would likely be considered a willful violation subjecting the business owner to a fine of $591 per day and possibly a sentence of two years in prison, whether the business owner actually knew of the CTA’s requirement to file a report or not. The bottom line is, your business and officers are deemed to know that the CTA requires this filing this year, and if you do not make the filing on time, it is almost certainly considered a “willful” violation of the CTA.
You Have to Get This Right
Unfortunately, for those who attempt to comply by filing their BOI Report on time but end up filing an incomplete report or a report which contains errors, these same stiff penalties apply. While the CTA does provide for a brief “safe harbor,” a 90-day window in which errors can be fixed without penalty, if a company does not realize its errors until after 90 days have elapsed, the $591 per day penalty is applied dating back to the date of the original filing. If, for example, a company realized on the 91st day from its original filing that its BOI Report did not report all of the beneficial owners who needed to be reported, the company would immediately face a fine of $53,781 if it corrected its report on the 91st day.
Dear Business Owner,
Because the BOI Report will be out of sight and out of mind for most companies who file their report, it is easy to see how a large amount of time could pass before it realized its BOI Report contained a mistake. The absolute best course of action is to file an accurate report on time the first time. We are committed to helping businesses navigate these treacherous waters by guiding you through the process of identifying the correct information which you will need to provide in your report to file it accurately and on time.
The Department of the Treasury estimates that more than 36 million businesses will have to file a BOI Report. Forbes Magazine has called this “The Biggest Issue You Have Never Heard of.” We strongly recommend you do not wait until the end of the year to file your BOI Report, as we are all aware of how government systems can become overloaded and crash. You do not want to be in the position of defending yourself from a prison sentence and tens or hundreds of thousands of dollars in fines because you are late.
We recommend to all of our clients that they file now, as we expect FinCEN’s processing systems to become overwhelmed towards the end of the year as stragglers rush to file their reports.
Sincerely,
Tommy Fuller
Tommy Fuller
Founder and President, Fuller Law Group, PLLC
While most small businesses will be required to file a BOI report, the CTA does provide some limited exemptions. We offer a FREE exemption check that will let you determine if your business is in one of these categories.