CPAs: How to Help Your Small Business Clients Navigate Beneficial Ownership Information (BOI) Reporting and the Corporate Transparency Act (CTA)

Update Following March 1st Federal Ruling:

Last Updated 3/8/24: Since our initial blog published last week, a federal district court in Alabama ruled the Corporate Transparency Act unconstitutional. Continue reading for the latest details.

Late Friday night-U.S. District Judge Liles C. Burke decided that the Corporate Transparency Act is unconstitutional on the grounds that Congress exceeded its powers in enacting the law—and so the rulemaking stemming from it is unlawful.

This ruling likely marks the beginning of legal discourse between Congress and small business advocacy organizations—including the National Small Business Association. We can expect to watch this legal action unfold throughout the year.

What does the federal ruling mean for my small business clients?

There isn't a one-size-fits-all option when it comes to navigating the Corporate Transparency Act for your small business clients—specifically BOI reporting. There are mixed strategies out there.

What are CPA Organizations saying?

The AICPA publicly supported the suspension of the BOI reporting rule, and is urging CPAs to encourage small business clients to continue submitting BOI reports—without processing reports for the clients themselves.

What are Employment Lawyers saying?

Employment lawyers are recommending that your small business clients wait as long as they can before filing.

Why delay? Because the BOI reporting rule may never be eiforced. Or it's possible that the legislation could return completely reimagined, requiring different information and/or less identifying documents from your small business clients. At the moment, there's no reason for your small business clients to upload this information-the "holy grail" for identity theft-online.

Your small business clients may still choose to file the report. The choice is theirs. There is no penalty for filing, though the program is not currently being enforced due to the federal ruling.

Beware of BOI Scam Tactics/BOI Promoters

Trusted law experts at Lipresti Law focus on business law, and shared an additional warning for small business owners in response to the BOI suspension: "Most small business owners can likely take care of the submission of BOIs themselves. In most cases the form is done in minutes online. We're already seeing a third-party vendor market develop, including scammers offering to complete this service at inflated price. There is also a fear among professionals that fraudsters will look to strike by offering the service at a very cheap price, just to gain access to your vital identifying documents—and then turn around and sell your information on the dark web. If you need help, get in touch with your business attorney or payroll provider for general education. The information requested per BOI is essentially the 'holy grail' for identity theft - don't let it fall into the wrong hands."

We'll continue to provide updates and action-items for you and your small business clients as the legal action continues. In the mean time, you can still learn about the legislation below.

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) of 2024 introduces a new layer of complexity to the landscape of business regulation. The bipartisan law came into effect on the first of the year, requiring businesses to report their beneficial ownership information to FinCEN.

Using this information, federal authorities can proactively track down criminal actors—preventing tax evasion and enhancing national security.

As a trusted CPA, you play a pivotal role in guiding your small business clients through the maze of CTA. This legislation begins a new era of transparency but it requires some legwork from business owners and their advisors like you. Let's delve into the CTA's intricacies and deepen our understanding of what Beneficial Ownership Information (BOI) reporting entails.

What is the BOI report?

It’s a mandatory report detailing the key Beneficial Ownership Information attributes of the Reporting Company filing report. The Corporate Transparency Act defines a Reporting Company as any non-exempt entity created or registered to do business in the U.S. by the filing of a document with a Secretary of State or any similar office under the laws of a state or tribe.

It’s important to note that the BOI report is not an annual requirement. The report only needs to be submitted once–unless there’s been a change of ownership and the filer needs to update, or correct information.

Are all of my clients required to submit the report?

As most small businesses are generally registered as Reporting Companies, most of your clients will have to file a BOI report.

Additional entities required to file the BOI report:

Foreign companies registered to do business in the U.S., including entities incorporated abroad but operating in the U.S.
Certain trusts and charitable organizations also fall under the CTA's umbrella.

There are 23 types of entities completely exempt from filing:

Publicly traded companies and other entities that file reports with the SEC
Banks
Credit unions
Money services businesses
Securities brokers and dealers
Tax-exempt entities
Insurance companies
State-licensed insurance producers,
Pooled investment vehicles

What is included in the BOI report?

The legal name of the company and any trade name (DBA) used by the company
Jurisdiction of incorporation or formation (the state or country)
The current street addresses of its principal place of business. If the principal place of business is not in the US, the company will report the address from which it conducts business in the US
Taxpayer identification number (EIN/SSN/TIN)

Are all of my small business clients defined as beneficial owners?

According to the CTA–any individual, who directly, or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25% of the ownership interest of such reporting company–is a Beneficial Owner.

A beneficial owner does not include:

A minor child
A nominee, intermediary, custodian, or agent acting on behalf of another individual
A non-officer employee whose interest is solely through the individual’s employment status
An individual whose interest is solely through a right of inheritance
A creditor who would otherwise meet the definition of a beneficial owner solely through rights to payment

Generally, reporting companies must provide four pieces of information about each beneficial owner:

Name
Date of birth
Current residential address
Identification document (generally a passport or driver’s license)

When’s the deadline to file the BOI report?

Filing is simple, secure, and free of charge on the FinCEN website. Reporting companies must file their initial reports by the following deadlines, determined by FinCEN:

Existing companies: Reporting companies created or registered to do business in the United States before January 1, 2024 must file by January 1, 2025.
Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.