Small businesses across the United States are grappling with new financial reporting requirements under the Corporate Transparency Act. This legislation mandates that over 32 million small businesses disclose private information about their beneficial owners to the federal government, including names, birth dates, addresses and government-issued IDs.
Lawsuit filed over financial requirements
A group of Boston-based advocacy organizations and Black women business owners have filed a lawsuit against the federal government, arguing that the act imposes invasive financial requirements. The plaintiffs, including the Black Economic Council of Massachusetts (BECMA) and the African Community Economic Development of New England (ACEDONE), contend that the act places an additional burden on business owners of color and immigrant business owners, exacerbating existing disparities and risks.
Concerns over vague definitions and penalties
The lawsuit challenges the act’s definition of beneficial owner as vague and potentially encompassing anyone with ownership or control over a business. It also points out the severe penalties for noncompliance, including fines and up to two years in prison, which could deter investment in small businesses.
Risks of information sharing
One of the critical concerns is the provision that allows the Financial Crimes Enforcement Network to share collected data with law enforcement and foreign governments. This sharing could increase the stress and vulnerability of targeted business owners, particularly those who are minorities, immigrants, non-English speakers and from low-income backgrounds.
Opposition from the Treasury Department
While the Treasury Department defends the act as essential for protecting the U.S. financial system from illicit activities, advocacy groups and business owners see it as a potential threat to the viability of diverse businesses. They argue that the act could unfairly target Black-owned small businesses and undermine economic equity.
Seeking guidance and clarity
The Treasury Department has encouraged businesses to consult its website for guidance on the new filing requirements and deadlines. Meanwhile, the lawsuit seeks to have the act ruled unconstitutional, as it represents a significant challenge to the economic stability and privacy of small business owners.
