The Corporate Transparency Act (CTA) was enacted in 2021 to mitigate illicit financial activities by requiring most companies that conduct business in the U.S. to report specific information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
FinCEN is a bureau of the U.S. Treasury whose mission is to combat financial crimes by collecting and analyzing information about financial transactions to combat money laundering, terrorist financing, and other financial crimes. The CTA’s reporting requirements take effect on January 1, 2024, and the implications for U.S. business owners and their professional service providers are far-reaching.
Unbeknownst to most business owners and even their trusted advisors, BOI reporting is a novel informational filing that will impact approximately 36 – 40 million businesses in the U.S. Certain companies formed before January 1, 2024, who do not qualify for an exemption must file their initial report by January 1, 2025.
New companies formed after January 1, 2024, only have 90 days from formation to file their initial BOI report. Time is of the essence, and U.S. business owners will undoubtedly turn to their professional service providers for guidance and assistance with this new filing requirement. It’s imperative for business advisors to understand their responsibilities and limitations in assisting their clients with CTA compliance.
While BOI reporting may be viewed as a tax filing, it is not administered by the Internal Revenue Service (IRS) and is subject to different rules and regulations. One of the most essential concepts for nonlawyer professional service providers to be aware of is the Unauthorized Practice of Law (UPL).
The UPL rules dictate what services nonlawyers such as CPAs, tax professionals, and registered agents may provide their clients. Any nonlawyer engaging in UPL may be subject to civil penalties, including fines, loss of licensure, or the ability to practice. Further, nonlawyers cannot collect professional fees directly from their clients for providing such services.
Depending on the severity of UPL violations, practitioners may even be subject to criminal penalties, including jail time.
The premise of UPL rules is to protect consumers and ensure that practitioners render competent and ethical legal advice aligned with their clients’ interests. However, the Courts have issued many vague opinions over the years that have not concisely defined the practice of law. To determine whether a nonlawyer professional has engaged in UPL, courts have applied tests focusing on the following:
This is intended to provide an overview of the UPL rules and their implications for practitioners. A detailed discussion of the various Courts’ interpretations of UPL over the years is beyond the scope of this article. However, professional service providers should be aware that the UPL rules are complex and vary in each jurisdiction.
While some states hold that the practice of law is anything that lawyers do, others merely list activities that constitute the practice of law. Due to the differing views of the States and federal laws that don’t provide a concise definition of UPL, nonlawyers must frequently collaborate with the appropriate legal professionals to ensure they do not inadvertently engage in UPL.
Professional service firms that offer their clients a wide array of professional services are referred to as multidisciplinary practices. Such practices may employ various professionals, including but not limited to lawyers, accountants, registered agents, and financial advisors. Each of these professionals must understand their roles, responsibilities, and especially the limitations of the services they provide their clients.
CPAs, in particular, enjoy certain freedoms due to their strict licensing requirements that encourage competent and ethical practices by licensed CPAs and the staff accountants who assist them. CPAs who pass an additional test may even represent their clients in the U.S. Tax Court.
However, CPAs must still be wary of crossing the line and providing legal advice to their clients. When in doubt, it would be prudent for CPAs to consult or collaborate with an attorney.
The complexity of a BOI report will vary greatly depending on the nature of the client’s structure and industry. Consider a simple example: a small pizza shop organized as a single-member limited liability company (LLC) in Florida with only three employees and $250,000 in annual revenue. The business owner’s CPA could easily determine that the business does not qualify for an exemption and may collect the necessary information and file the BOI report on behalf of the business. This would be well within the CPA’s capabilities and would not be considered UPL.
However, if a private equity firm engages a CPA to prepare the BOI reports for hundreds of portfolio companies operating in various industries, this requires substantial analysis and a deep understanding of the CTA and the associated regulations. If a nonlawyer CPA were to perform this analysis independently and file the BOI reports without consulting a legal professional, they could be deemed to be engaging in UPL.
Accordingly, nonlawyer professional service providers should engage a qualified legal professional to assist with the more complex nuances of the CTA and BOI reporting.
Nonlawyer professional service providers must be wary of inadvertently engaging in UPL. As the complexity of an engagement increases, it would be wise for these professionals to consult with an attorney to ensure they do not expose themselves and their clients to unnecessary risk by performing analyses and making determinations that require the requisite legal knowledge of a licensed attorney.
The consequences for nonlawyer professionals engaging in UPL extend not only to civil and criminal penalties but also damage to their professional reputations. Clients depend on their trusted advisors to guide them through complex problems, whether they be financial, legal, or a multitude of issues.
FileForms team of CPAs and attorneys mitigates professional service providers’ risk of engaging in UPL by employing tax and legal industry experts with the requisite knowledge to properly handle their Clients’ BOI reporting needs.
Whether these providers want to handle their clients’ BOI reports in-house or outsource their BOI function to FileForms team, solutions are available for every instance. For more information, please visit our website or contact us.
 The ABA Model Rules do not attempt to define the practice of law. MODEL RULES OF PROF’L CONDUCT R. 5.5 cmt. (2011) (“The definition of the practice of law is established by law and varies from one jurisdiction to another.”).
 See Gary G. Sackett, An Analytic Approach to Defining the “Practice of Law” Utah’s New Definition, UTAH B.J., Jan. 20, 2006, http://webster.utahbar.orgIbarjoumal/2006/01/ananalyticapproachtodefini.html (explaining that most legislatures, courts, bar associations, and committees’ attempts to define the practice of law are “circular because they define a concept in terms of the very term ‘law’ or its derivatives such as ‘lawyer’ and ‘legal.’).
 Melone, supra note 10, at 53; see also Ronald A. Landen, Comment, The Prospects of the Accountant-Lawyer Multidisciplinary Partnership in English-Speaking Countries, 13 EMORY INT’L L. REV. 763, 774-90 (1999) (providing descriptions of how various U.S. and international jurisdictions define the practice of law).