Farmers across the country are likely to be in for a surprise in 2024 when they must start filing disclosure reports with an obscure federal agency tasked with fighting money laundering and financial terrorism.
A law called the Corporate Transparency Act, which lawmakers tucked into the fiscal 2021 defense authorization bill, requires a wide array of small businesses, including farming operations, to file reports on their ownership with the Financial Crimes Reporting Network, a Treasury Department agency known as FinCEN.
The law targets small business entities, including LLCs or partnerships, because those are considered to be key avenues for money laundering. Publicly traded companies, nonprofit organizations and other larger entities are exempt.
The reports will be required to provide information including birth dates and addresses of all beneficial owners of the farm or business. Beneficial owners include anyone who owns or controls at least 25% of the business or those who “exercise substantial control” over it.
Farms operated as LLCs, limited partnerships and S or C corporations will all have to file the reports. Even LLCs with a single member must file.
The regulations “will strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder their money or hide assets,” the agency says.
But Pat Dillon, a lawyer who works with farmers in northeast Iowa, doesn’t think the disclosure law is going to go down well with many farmers, who may have to hire an attorney to advise on what they have to report.
“Farmers use corporate structures like LLCs and partnerships for estate planning and risk management. And so there's going to be additional reporting requirements placed on them that they can't pass on to an end user of their product because they sell a bulk commodity,” Dillon said.
Garrett Couts, Brady & Hamilton LLPSome farmers also may not like the idea of providing personal information to another federal agency, Dillon added. The information is similar to — but not the same as — what USDA’s Farm Service Agency collects from producers who participate in commodity and loan programs. Under the Corporate Transparency Act, the information provided to FinCEN is supposed to be kept confidential and used only for law enforcement and national security purposes.
“One branch of government says 'I need to know these things about you.' Now another branch of government says, 'Well, I needed almost all those same things, but I want it in a different format, and you have to use my system to use it. And then you also need to do this extra step.' That kind of thing irritates most farmers and operators,” Dillon said.
In some cases, the reporting rules are going to be tricky for accountants and lawyers to figure out. For example, general partnerships are technically exempt from the reporting requirement, but individual partners may not be, said Garrett Couts, an ag lawyer in Lubbock, Texas.
Farms in his area are frequently set up as general partnerships, but the partners are typically LLCs or limited partners.
“If you have a general partnership where the owners of the general partnership are themselves LLCs, well, they're going to have to report. … The primary entity may not (have to), but the sub-entities do,” Couts said.
Couts stumbled on the Corporate Transparency Act requirements while researching other regulations.
“I was like 'Surely I'm misreading this, right? This must be like a big Wall Street, issue,'" he said. “This is everyone but Wall Street.”
There is no fee for filing the report with FinCEN, but farms and businesses may need to hire lawyers to help them figure out whether or not they have to file a report and, if so, who has to be included in it. FinCEN says most filers have simple management structures and estimates that it should only cost them about $85 to prepare a report.
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That’s not even close to what it will cost a farmer who needs legal help with the filing. “If a client asked me to do this, I'm charging more than $85,” Couts said.
Kristine Tidgren, Iowa State UniversityThe reporting requirements — and the challenge of determining who owns or controls how much of a farm or business — already are raising concerns for accountants. For them, helping a farmer prepare the reports “could be the unauthorized practice of law,” Kristine Tidgren, director of Iowa State University's Center for Agricultural Law and Taxation, told members of the American Agricultural Law Association at a recent conference in Charlotte.
“All the attorneys have to get up to speed on what this is," she said. “You're going to have folks knocking on your door saying 'My accountant says I have to file this report. I don't know what to do.'”
One of the key issues for lawyers will be determining who has “substantial control” over a farm or business. FinCEN laid out a definition that the agency says “captures anyone who is able to make important decisions on behalf of the entity" on contracts and major expenditures as well as such issues as the selection of business lines and the sale, lease or transfer of assets.
“FinCEN’s approach is designed to close loopholes that allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking anonymous shell companies,” the agency says.
FinCEN will start accepting the reports through an online portal in January. Farms and businesses have until 2025 to file. Businesses will subsequently have 30 days to report changes in their ownership or control. Failure to file the reports could result in fines of $500 a day up to a total of $10,000.
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