With the passage of the Corporate Transparency Act (CTA) in 2021, CPAs and tax professionals will be called upon by their clients to assist with FinCEN’s newest informational reporting requirement: Beneficial Ownership Information (BOI) report filing.
It’s imperative that CPAs and accountants are aware of the implications of the CTA and BOI reporting requirements for their clients, who will undoubtedly turn to their trusted advisor for guidance and assistance with this new FinCEN filing.
The CTA was enacted to mitigate financial crimes, such as money laundering and terrorist financing, by unveiling the natural persons who ultimately own various entities, such as limited liability companies, corporations, and partnerships. While the vast majority of business owners utilize these structures for legitimate purposes, such as insulating themselves from personal liability or asset protection, there are, unfortunately, bad actors who utilize these same structures to disguise their true ownership and engage in illicit activities.
The CTA will require approximately 36 million businesses located in or registered to do business in the U.S. to disclose information about the beneficial owners of these entities. Unless a company qualifies for an exemption, it must report information about its beneficial owners to FinCEN.
Companies that are required to file BOI reports are considered Reporting Companies by FinCEN. Unless a company operates in a highly regulated environment (e.g., banking, insurance, utilities, governmental entities, etc.), or has more than 20 full-time employees, a physical presence (i.e., an office) in the U.S., and more than $5M in gross receipts per year, it is most likely a Reporting Company.
Reporting companies can either be U.S. or foreign companies, provided they’ve filed a registration document with a Secretary of State (or similar office) upon formation or to do business in the U.S. A company formed in the U.S. will be considered a domestic reporting company, while a company formed foreign in a jurisdiction, which has registered to do business with a Secretary of State or similar office, will be considered a foreign reporting company.
Most U.S. business owners will now be required to report information about their companies and furnish personal information to FinCEN, including their business and residential address, the company’s taxpayer identification number (e.g., EIN or FTIN), an individual’s unique identifying number from an acceptable identification document (e.g., driver’s license or passport number), and a photo of the identification document.
Beginning January 1, 2024, FinCEN’s new reporting requirements will come into effect. Businesses formed before January 1, 2024 will have until January 1, 2025, to file their initial report. Companies formed after January 1, 2024, must file their initial report within 90 days of formation. With millions of Americans unaware of these new reporting requirements, they will almost certainly call upon their CPA to assist them with their BOI reporting needs.
The collection and subsequent reporting of information may be relatively straightforward in simple structures, such as single-member LLCs (SMLLCs). FinCEN estimates that a simple BOI report may take as little as 3 hours to complete.
However, this is a big ask for taxpayers unfamiliar with FinCEN’s reporting requirements. Familiarizing themselves with the legislation, reporting the necessary information about the company and its owner(s), and electronically filing their BOI report through FinCEN’s e-services portal can be an arduous process.
Beneficial ownership is a concept that applies not only to direct owners but also to individuals who indirectly own more than 25% of a company or exude substantial control over the company. This may include individuals on the board of directors or senior executives with the ability to make decisions on behalf of the company.
For companies formed after January 1, 2024, a reporting company must also report information about their company applicants, such as the CPA or attorney who initially filed the formation or registration documents with the Secretary of State or similar office. As the size and complexity of a business’ structure increases, so does the time required to report BOI information to FinCEN accurately.
For more complex structures with multiple owners, the amount of time necessary to complete a BOI report grows exponentially. Gathering all the necessary documents from multiple owners and reporting any changes of information can be a daunting task. FinCEN estimates that it may take as many as 80-90 hours to complete a BOI report for complex structures.
Analyzing these tiered ownership structures to determine the beneficial owners, individuals exuding substantial control, and potentially its company applicants is a significant undertaking. Further, if any of the beneficial owners’ information changes during the year, a subsequent BOI report must be filed to report this change.
For example, if a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, a revised BOI report must be filed within 30 days to report this change. However, if a beneficial owner simply renews their identifying document, but their name, address, or unique identifying number does not change, a subsequent BOI report would not be required because there was no change of information. The nuances of BOI reporting are complex, as such, this is not just a one-time file-and-forget type of filing. It demands constant monitoring with the assistance of a trusted advisor to ensure that companies remain compliant with the CTA.
If a BOI report isn’t filed with FinCEN in a timely manner, a company may incur penalties of $500 per day, up to $10,000 until the report is filed or corrected. If a taxpayer willingly furnishes fraudulent information on a BOI Report, they could face civil penalties and imprisonment of up to two years.
While these penalties may seem harsh, FinCEN has historically imposed severe penalties on taxpayers who failed to file information related to their ownership of foreign bank accounts on the Foreign Bank Account Report (FBAR).
As such, it would be unwise to brush BOI reporting to the side and run the risk of exposing clients to severe civil and even criminal penalties.
As more taxpayers and tax professionals become aware of BOI reporting, there will undoubtedly be a surge in requests for clients’ CPAs to handle this filing for them. With a crippling shortage of CPAs, many tax professionals are already buried with tax returns, extensions, and quarterly estimates and have little capacity to take on additional work.
Furthermore, as with annual reports, CPAs may view BOI report filing as low-margin and time-consuming, a service they’d prefer to push back to their clients.
However, FileForms has created a technology-enabled platform that streamlines BOI reporting and transforms this otherwise undesirable work into an easy recurring revenue stream. FileForms offers multiple solutions to the BOI problem looming for tax professionals.
CPAs and tax professionals must be wary not to engage in the Unauthorized Practice of Law (UPL), which prohibits nonlawyers from providing legal services to their clients. While BOI reporting, on its face, may appear to be a tax filing, it is administered by FinCEN, not the Internal Revenue Service (IRS). Accordingly, BOI reports, and specifically the analysis and determination of which companies must file, could be viewed as legal advice and UPL by a tax professional.
A CPA engaging in UPL could face civil penalties, lose their license, or even be charged criminally. Further, nonlawyers engaging in UPL may not collect professional fees related to such services from their clients.
Because FileForms’ team is comprised of both CPAs and attorneys, utilizing FileForms’ platform eliminates the risk of tax professionals unknowingly engaging in UPL and ensures their clients receive the highest quality of service while generating an additional revenue stream from what may be considered low-margin and high-risk engagements.
FileForms assists tax professionals and business owners by streamlining the BOI reporting process and making the collection of information a much simpler task. FileForms’ proprietary platform empowers tax professionals and business owners to easily fulfill their BOI obligation and remain compliant with the CTA.
Information is collected through FileForms’ secure platform, making it a breeze for business owners to provide the necessary information to prepare their BOI reports. FileForms offers multiple solutions for CPAs and tax professionals seeking assistance with BOI reporting.
FileForms’ suite of products includes solutions for small business owners to prepare their own BOI reports or for their tax professional to prepare and update the Reports on their behalf. If a CPA or accountant wishes to outsource their BOI function entirely, FileForms also offers referral partnerships that remove the burden of filing BOI reports and turn client referrals into easy recurring revenue for CPAs while also ensuring white glove service from the industry experts at FileForms.
To learn more about FileForms services, please visit explore our website or contact us to schedule a demo today.