Periodic Reports Scam

In the past, I’ve written about dubious awards like America’s Top Financial Planners and how they disguise the marketing as an official state document in order to lure advisors into opening the envelope. Recently, I noticed the latest scam directed at small business owners (from different perpetrators though).

You see, every state has a process for registering your business entity. Say you open a dry cleaner, consulting firm or ice cream shop and form an LLC or S-Corp. How does one create that LLC or S-Corp? Well, you file the business entity with your state according to each state’s rules, but it is usually with the Secretary of State. Here in Colorado, this is a very simple, fast, efficient and inexpensive process. Something like $50 for the initial filing (done instantly online). I’ve done this several times now and am always amazed and pleased how easy it is. Filing for a separate tax ID with the state and feds is another step, also not too cumbersome.

Now, here is the catch. You must maintain your company in “good standing” with the state. This requires filing an annual report known as the “annual update”. This simple filing is nothing more than an update to the state’s database to keep it current as to ownership of the business entity, address, etc. Basically, the state needs to know if you are still in business and if so, who owns the company and where to find them. Obviously, this helps authorities ensure that tax returns are filed and protects the business owner from someone else using the entity’s registration for mischief. It also helps keep records of the number of business started and closed, useful for economists.

A company called “Corporate Controllers Unit” is trying to lure people into filing this annual update through them at a cost of $225.00 per year compared to Colorado’s bargain basement $10 fee. I call this a scam because while huge markups are not illegal per se, the marketing of this dubious service is quite misleading. You see, the letter looks very much like official Colorado forms. I’ve marked up one sent to me here (click for full size version):

According to some reports, you may receive a second “delinquent” notice in the mail similar to this one. By the way, this comes in an envelope also designed to look very official, with circular logo and “2011″ in the bottom right hand corner. That “2011″ is often how official state and federal tax info is marked prompting the subconscious “I’ve seen this format before and its usually important” reaction.

In addition to the wasted money, there is no assurance you filing will be done at all or what they might do with your information and signature.

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