The Treasury Department can fine small businesses up to $10,000 if they fail to file this report

Small businesses and their owners could face fines of $10,000 or more if they don’t comply with the U.S. Treasury Department’s new reporting requirement by the end of the year — and there are indications that many have not yet complied.

The Corporate Transparency Act, passed in 2021, created the requirement. The law objectives to curb illegal financing by asking many companies operating in the US to come forward beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network, also known as FinCEN.

Many companies have a January 1, 2025 deadline to file an initial BOI report.

This applies to approximately 32.6 million businesses, including certain corporations, limited liability companies and othersaccording to federal estimates.

The Treasury Department did not respond to CNBC’s request for comment on the number of BOI reports filed to date.

The data helps identify the people who directly or indirectly own or control a company, making it “more difficult for bad actors to hide or profit from their ill-gotten gains through shell companies or other opaque ownership structures.” according to to FinCEN.

“Corporate anonymity enables money laundering, drug trafficking, terrorism and corruption,” Treasury Secretary Janet Yellen said in January announcement of the launch of the BOI portal.

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Here’s the kicker: companies and owners not filing returns can be confronted According to FinCEN, civil penalties can be up to $591 per day for each day the violation continues. (The amount has been adjusted for inflation.) Additionally, they could face up to $10,000 in criminal fines and up to two years in prison.

“For a small business, you’re suddenly staring at a fine that could sink your business,” says Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and a founding partner of Moisand Fitzgerald Tamayo.

The federal government had received about 9.5 million filings as of Dec. 1, according to statistics FinCEN provided to the office of Rep. French Hill, R-Arkansas, who has called for a repeal of the Corporate Transparency Act. Hill’s office shared the data with CNBC.

That figure is about 30% of the estimated total.

FinCEN was receiving a volume of about 1 million new reports per week in early December, Hill’s office said.

A “beneficial owner” is an individual who owns at least 25% of the ownership interest in a company or has “substantial control” over the entity.

Companies must report information about their beneficial owners, such as name, date of birth, address and information from an identity document such as a driver’s license or passport, among other data.

Companies that existed before 2024 must report before January 1, 2025. Companies incorporated in 2024 have 90 calendar days to file from the effective date of incorporation or registration; those created in 2025 or later have 30 days.

There are several exceptions meet the requirement: for example, those with gross sales of more than $5 million and more than twenty full-time employees may not need to file a report.

Many exempt businesses – such as large corporations, banks, credit unions, tax-exempt entities and public utilities – already set up comparable data.

Brian Nelson, the Treasury Department’s assistant secretary for terrorism and financial intelligence, said in an interview at the Hudson Institute earlier this year that the agency was “on full press” to raise awareness about the BOI registrationopened on January 1, 2024.

But it seems that many business owners are not complying or are unaware of the requirement outreach efforts.

The scope of national compliance is ‘dismal,’ says the S-Corporation Association of America, a business trade group, said early October.

The “vast majority” of companies had not yet filed a report, “meaning that millions of small business owners and their employees will become de facto criminals by early 2025,” the report said.

However, the situation is not so grim, others said.

First, on December 3, a federal court in Texas temporarily blocked the Treasury Department from enforcing the BOI reporting rules, meaning the agency cannot impose sanctions while the court conducts a more thorough investigation into the constitutionality of the rule.

“Companies still need to archive their information,” said Erica Hanichak, director of government affairs at the Financial Accountability and Corporate Transparency Coalition. “The deadline itself has not changed. It only changes the enforcement of the law.”

The government is expected to appeal, and enforcement “could resume” if the order is reversed. wrote lawyers at Fredrikson law firm.

In addition, the Treasury Department said it would only impose fines on an individual (or company) that “deliberately violates“BOI reporting.

The agency isn’t out to “hate enforcement,” Hanichak said.

“FinCEN understands that this is a new requirement,” reads an FAQ. “If you correct an error or omission within 90 days of the deadline for the original report, you can avoid being penalized. However, you may face civil and criminal penalties if you fail to comply with your obligations to report beneficial ownership information ignores.”