States Call on Congress to Focus on Collection of Entity Ownership Information Through Existing Federal Tax Filings

WASHINGTON, DC – The National Association of Secretaries of State (NASS), which represents state officials who oversee the business filings process in the U.S., is urging Congress and other federal officials to focus on tracking corporate entity ownership information through existing federal tax filings, such as IRS Revised Form SS-4. With this data readily available to law enforcement agencies for investigations related to criminal or terrorist activities, any federal legislation requiring states to collect the same information is unnecessary, costly, overly bureaucratic and potentially redundant (see NASS July 2010 resolution).

At a time when the federal government is cutting spending and many states are facing serious budget shortfalls, now is the wrong time to saddle taxpayers with a huge bill for state implementation of redundant filing requirements and complex regulations on business. The 50 state corporate formation process is simply not an appropriate, effective, or efficient vehicle for tracking beneficial ownership information.

Secretaries of State are disappointed that the Incorporation Transparency and Law Enforcement Assistance Act (S. 1483) has been reintroduced in Congress without any regard to our longstanding concerns. NASS has opposed the two previous versions of this bill because its approach to collecting beneficial ownership information would leave states with ill-defined, unfunded mandates while creating unnecessary costs and confusion for businesses. The latest version still lacks a clear definition of “beneficial ownership” and leaves the complexities of this term to vetting by federal agencies with differing viewpoints.

Make no mistake about it. This is not merely about adding one line to an existing form, as the bill’s sponsors have claimed. Meeting the requirements of S.1483 would require a significant and costly expansion of state government oversight. It contemplates at least ten possible scenarios where information must be filed with the state, including identification information, annual reports and updates, as well as various certifications. States will have to develop administrative procedures for collecting, processing and storing the information in these multiple new filings by multiple entities. They will need to establish expensive, new licensing procedures for company formation agents. Even the various corporations and LLCs that are “exempt” from the new disclosure requirements will be required to provide the state with contact information and a certification as to why they are considered exempt. It is far more complicated than some may think, and doing it properly would require an extensive and continuous funding source that doesn’t currently exist.

The vast majority of the estimated two million new companies formed in this nation each year are created by law abiding citizens for legitimate purposes. These companies serve as the backbone of our state and national economies. The relative ease and low cost of starting a company in the U.S. are direct factors in the success rates of American small businesses compared to their counterparts in Asia, India and Europe, according to the U.S. Small Business Administration. Why would we make this process more expensive and complex during a major recession, when other workable alternatives already exist?

If the goal is truly to assist law enforcement by reducing the ability of criminals to hide behind front companies and shell entities – as states have already sought to do—then the solutions should be both practical and cost-effective. States are willing and able to assist federal authorities with the pursuit of ownership entity information via the best paper trail that already exists at no additional cost: federal tax filings and IRS Revised Form SS-4.

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Media contact: Kay Stimson 202.624.3528 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it