The Treasury Division can high-quality small companies $10,000 in the event that they fail to file this report

Treasury Secretary Janet Yellen after a tour of the Financial Crimes Enforcement Network (FinCEN) in Vienna, Virginia, on January 8, 2024.

Valerie Plesch/Bloomberg via Getty Images

Small businesses and their owners could face penalties of $10,000 or more if they fail to comply with a new U.S. Treasury Department reporting requirement by the end of the year — and there is evidence that many have not yet complied.

The Corporate Transparency Act, passed in 2021, created the requirement. The law aims to curb illicit financing by requiring many companies operating in the U.S. to report beneficial ownership information to the Treasury Department's Financial Crimes Enforcement Network, also known as FinCEN.

Many companies have a deadline of January 1, 2025 to file an initial report on beneficial ownership information.

According to federal estimates, this applies to approximately 32.6 million businesses, including certain corporations, limited liability companies and others.

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

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,” FinCEN said.

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

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Here's the kicker: According to FinCEN, businesses and owners who fail to file could face civil penalties of up to $591 per day for each day their violation continues. This amount is adjusted for inflation. They also face fines of up to $10,000 and up to two years in prison.

“For a small business, you're suddenly facing a fine that could ruin your business,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and founding member of Moisand Fitzgerald Tamayo.

The federal government had received about 9.5 million applications as of Dec. 1, according to statistics provided by FinCEN to the office of Rep. French Hill, R-Ark., who has called for repeal of the Corporate Transparency Act. Hill's office provided the data to CNBC.

This figure represents approximately 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.

Many companies may not be aware of this

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A “beneficial owner,” according to FinCEN, is a person who owns at least 25% of the ownership shares of a company or has “substantial control” over the company.

Companies must report information about their beneficial owners, including name, date of birth, address, and information from identification such as a driver's license or passport, as well as other data.

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

Corporate anonymity enables money laundering, drug trafficking, terrorism and corruption.

Janet Yellen

US Treasury Secretary

There are several exceptions to the requirement: For example, companies with gross sales of more than $5 million and more than 20 full-time employees may not be required to file a report.

Many tax-exempt entities—such as large corporations, banks, credit unions, tax-exempt corporations, and public utilities—already provide similar data.

Brian Nelson, the Treasury Department's undersecretary for terrorism and financial intelligence, said in an interview at the Hudson Institute in February that the agency is “going full speed ahead” to raise awareness of the BOI registry, which opened Jan. 1.

However, it appears that despite public outreach efforts, many business owners are either not complying with this requirement or are unaware of it.

The level of national compliance is “dismal,” the S-Corporation Association of America, a business group, said in early October.

The “vast majority” of companies have not yet submitted a report, “which means that from the beginning of 2025, millions of small business owners and their employees will become de facto criminals,” it said.

Enforcement is pending

Bevan Goldswain | E+ | Getty Images

However, the situation is not quite so dire, others said.

For one thing, on December 3, a federal court in Texas temporarily blocked the Treasury Department from enforcing the BOI reporting rules, meaning the agency cannot impose penalties while the court conducts a more thorough review of the rule's constitutionality.

“Companies should continue to submit their information,” said Erica Hanichak, director of government affairs at the Financial Accountability and Corporate Transparency Coalition. “The deadline itself has not changed. It just changes the way the law is enforced.”

The government is expected to appeal, and enforcement “could resume” if the injunction is lifted, lawyers at the Fredrikson Law Firm wrote.

Additionally, the Treasury Department said it would only impose penalties on individuals or companies that “willfully violate BOI reporting requirements.”

The agency is not looking for “gotcha enforcement,” Hanichak said.

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