Traversing the beneficial ownership information reporting requirements

The Corporate Transparency Act (CTA), enacted Jan. 1, 2021, requires many entities to file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) beginning in January 2024. Its goal is to increase transparency about who owns or controls an entity and deter money laundering activities.

Tune in to this podcast episode to hear from Melanie Lauridsen, Vice President, Tax Policy & Advocacy — AICPA & CIMA, Roger Harris, President and COO — Padgett Business Services, and Larry Gray, Owner —Alfermann Gray & Co LLC, on the latest with regards to BOI reporting.

What you'll learn in this episode

• Background on BOI reporting (0:57)
• Professional risks associated with completing BOI reports for clients (1:50)
• Advice for CPAs considering an engagement (3:58)
• Roger's take on the unauthorized practice of law (UPL) (5:32)
• Larry's view on how he's handling this UPL (7:33)
• How to communicate to clients about BOI reporting (11:00)
• Recommendations on managing risks (13:51)
• How to relay changes that would impact reports to clients (16:40)
• FAQ from fellow practitioners (19:02)
• Final thoughts (25:13)

AICPA resources

• Beneficial ownership information (BOI) reporting — Access resources to learn about the beneficial ownership information reporting requirement under CTA.
• Risk Alert: Navigating Corporate Transparency Act/Beneficial Ownership Reporting – Risk alert from AON, issued Oct. 17, 2023, and updated Nov. 30, 2023.

Other resources

• FinCEN's Beneficial Ownership Information — Access FinCEN's comprehensive information on BOI reporting, including a reporting rule fact sheet, FAQ and newsroom.

Transcript

April Walker: On today's podcast, listen to hear more about the Corporate Transparency Act and beneficial ownership reporting.

Hello everyone, and welcome to the AICPA's Tax Section Odyssey podcasts, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a lead manager from the AICPA Tax Section. Today I'm joined by Melanie Lauridsen, she's AICPA's VP of Tax Policy and Advocacy.

I'm also delighted to be joined by Roger Harris. He is president of Padgett Business Services, who represents the interests of small businesses who are clearly impacted by this reporting regime that we're going to be talking about today.

Larry Gray, Larry is a CPA who owns his own accounting practice and represents tax professionals and their considerations regarding BOI reporting.

Just want to do a quick background before we delve into the questions today. As you likely know, the Financial Crimes Enforcement Network, which is also known as FinCEN, establish a beneficial ownership reporting requirement, which we will refer to today as BOI, under the Corporate Transparency Act and that requires many businesses to report information on their beneficial owners, and that starts January 1st of 2024.

We're recording this today on December the 14th, and that January date is definitely rapidly approaching. We've actually done a podcast on this before, some other more details, but we wanted to provide some information based on what we know now around that reporting requirement, provide some clarity when we can on questions that we've been hearing.

I'd love to start out with you, Melanie. Let's start off by talking about just general professional risks related to CTA that CPAs are facing right this minute.

Melanie Lauridsen: Sure. As you know, a lot of people and firms, there's not a lot of information with BOI and they are debating is this something that they can or can't take on as an engagement for either themselves or the firms.

There's a couple of things to know overarching and that there are risks, whether you choose not to or if you choose to take on this type of engagement and the first one is failure to advise the client that this reporting requirement even exists.

You wouldn't want a client to come back to you and say, you knew about this. You didn't say anything to me and now I'm facing these fines and penalties and keep in mind, the fines and penalties are pretty steep, we're talking up to $10,000, two years in jail time and you would never want somebody to come and point the finger at you if you knew that they had this filing requirement.

The other overarching risk that people have is as we get closer and closer to the deadline, it's become more of a topic of conversation and people can just ask you for advice. There is hesitancy there that you should have because providing any off-the-cuff advice could lead to incorrect information if you don't have all the specifics and can also lead to violations because you don't know what is happening at that state level.

There is something called unauthorized practice of law. I just need to be clear that no state bar has made this determination of whether it is unauthorized practice of law for non-attorneys to be providing advice or working within the BOI engagement.

Well, I can also tell you is there is an AON members insurance program risk alert, and it really has outlined all the different risks and how to manage this engagement, so I highly encourage you to take a look at that.

Walker: Yeah, that's great. We'll dig into some of those a little bit later and talk to Roger and Larry about them. But let's say that a firm is considering providing services related to BOI. What would you say to them, if they're asking you like Melanie, what should I do? Should I take on this engagement or not?

Lauridsen: That's a common question that we get. But here's the thing about this engagement. There is no yes or no answer. It's not a blanket, yes, you should take it on, no, you shouldn't take it on. So we really encourage people to take a look at their scenario.

The first thing that they need to know is they need to understand their own risk tolerance as to whether or not they want to take on this engagement. The second piece is they really need to understand their clients, and the needs of those clients and the level of service that you would be providing to that client. Then, of course, you would have to take a look at inventory. What are the realistic risks that I can mitigate to prevent unwanted outcomes?

I need to say that with any engagement and I don't just mean BOI but every time we take on any engagement with a client, there are levels of risk associated. BOI is new. There's still a lot of guidance that needs to come and so I think a lot of people are a little bit panicked by it because they just don't know when we don't understand everything associated with it.

I'll also say that different firms and different peoples can come to different conclusions and that's okay. It just depends as they take inventory within themselves. Again, I'm going to reference the risk of work that came out because that really does walk people through that.

Walker: All right. Roger I'd like to bring you into the discussion now and just we'll start out with just a flat-out question.

To lay your take on whether you believe engagements around BOI are considered unauthorized practice of law or UPL.

Roger Harris: First of all, thank you for inviting me today.

No, I don't think they are. I just recently had a discussion with our corporate attorney because the BOI, as you mentioned, it's right around the corner and people are questioning what should they do and what should they not do and I think we're going to find that our clients are going to fall in a couple of buckets.

One is where it's pretty straightforward, it's a single member, corporate or LLC. There are no other owners out there that is remotely considered could fall under the bill, our rules.

But then you get into a case where there may be this person lurking in the background that could have this substantial control or whatever the terms they use and we're trying to make a determination about how does this person's situation fit into the law.

I think that's when we get into that case, that's when stretching over into whether it's practicing law or just giving advice that we're not qualified to give. I think we're going to find that the clients are going to fall in two basic buckets, ones that are pretty straightforward. We can probably assume into a lot of points Melanie made. We're willing to accept the risk because nothing is risk-free even if it's cut and dry.

Those we can probably help and then there's going to be those others where we're going to have to defer to an attorney to make a determination because not only is it somewhat ambiguous, it's brand new, and we don't have any history or cases or guidance or anything to help us make a determination, so it's going to be in our best interests to let the attorneys take that risk.

Walker: Even the form, we haven't seen the form, we will see it on New Year's day as we are recovering from New Year's eve, we all log in to FinCEN and look at the form. I don't know what I'm envisioning. Larry, I'd love to hear your take on this and how you're handling this issue with your clients.

Larry Gray: Well, first, thank you for the invite, and just real quick, I think in parallels; I want to speak as a practitioner and a small community, but also I do Missouri Society of CPAs presentations. So, I presented this as late as of yesterday. They both come out the same way.

I think first, we have to decide how we're going to assist the client, which means we're in this game because where the client's going to go. As far as I look at it as two groups and I'll say what I said yesterday to about 500 practitioners.

I think first thing is this coming year our clients we currently have in business, we have 12 months to find out what happens and Roger and I in earlier conversation, we both are on the same page there. We're going to wait toward later in the year to let it flush out.

FinCEN day before yesterday, updated the frequently asked questions; almost weekly, they update it. I think in that light, we got to first know our client and then know their business. And then that's when we take the risk assessment and I can say as a small practitioner, there's going to be the majority of my clients, I'm going to be able to say, here's what you need.

I don't really feel it's unauthorized practice of law if you say put in your name, your address, and your driver's license number or your name, address and your company's ID number.

It's when it's that section of the law that says substantial control. At that point in time, we got to pull the attorney in to do that. But again, I think every practitioner has a responsibility to service the client.

I think first thing, and Melanie, I'm going to steal part of what you said. Speaking, I follow three different malpractice companies, I talk to attorneys, we had one law firm at every of the five locations, and they were talking about this same BOI.

And, the fact is, the two biggest mistakes we can do is not advise it at all to make them aware, and then off-the-cuff advice. But in between that, we are a value resource, we want to keep our clients, we want to give them a professional service and I think part of that professional service is to keep them compliant without practicing law. And again, I will go back and summarize it.

As long as we're not over there, and this is a lay person, I'm not an attorney. But as long as we stay away from what is substantial control and it is that sole proprietor. If it's a husband and wife — they're the company, they're the beneficial owner. So, when I look at my clientele, the majority of my clients, I want to be able to say, here's a fact sheet, this is real facts. You can do this. Here's where you go.

But if we have a question at that point in time, then I think risk starts to set in. Who is your attorney? That's the group we have now. The group that starts January 1st is the newbies and they have a time period 30, 90 days in order to get right.

When they come in and say I'm a new client or I'm setting up a new entity, I'm going to say who is your attorney and I'm going to coordinate that and I have to do that starting January 1st. I think we have two types of clients, know your client, know their business, and you're going to be able to do this.

Walker: Great. Thanks. And Roger, I'd like for you, we talked a little bit about this. There's such a lack of awareness about this issue with the businesses, with attorneys, and we're trying to do our best to really get information out there to make sure our CPAs and tax practitioners aware of this issue.

What do you see as ways that you're reaching out to clients? Or what ways would you recommend reaching out to clients about this issue and thinking about that, the knowledge and awareness piece?

Harris: I think that's probably…I've said this many times for something that impacts this many people, this is the most misunderstood law that I've seen in years.

There's such a lack of understanding. Again, we're a couple of weeks away from the new year, there's, as you mentioned, attorneys that don't know anything about it. I bet the awareness, and the small business community is minimal unless an adviser has actually come to them and make them aware of it.

Within our community, I'm not sure that the awareness is where it needs to be, so we have a huge lack of awareness. One of the things that we're telling our people, I'll refer to something that Larry references. He and I talked about…we're not in a hurry to fill out forms, but we are really in a hurry to inform that we're going to take this filing season.

We will interact with almost all of our small businesses to make them aware of this requirement because most small businesses think most law exempt small businesses where this one targets. They probably, if they heard about it, felt like that doesn't apply to me. I'm a small business; it doesn't apply to me.

We're going to spend the filing season to really inform people. Ask for their patience while we dissect liabilities and rules and ever-changing landscape, and take advantage of the fact that we have the entire year. But I know we worked early on with AICPA on developing some communication that has gone out because I think you guys recognized early on the lack of awareness and you're to be congratulated, we're happy we could have helped with that.

But I think everybody in our industry needs to really focus over the next few months on informing people about the law, the seriousness of it, the penalties that are available if you fail to comply and ask for their patience while we try to figure it out how to administer something that while well intended doesn't really fit well in anybody's business model.

Not just the initial filing, but the potential for updated filings when subtle things, little things that have never been important to us change like somebody's driver's license changes. None of us, I don't think it probably ever been concerned about the exploration of our clients' driver's license. But in the world of BOI, it might be pretty important.

Walker: I want to talk about something, that is, if firms have decided, made the decision to evaluate the risk and decided to provide these services, what recommendations would you say on managing their risks, Melanie? You take that one to start with?

Lauridsen: Absolutely. Just like any engagement, you need to have very thorough documentation. Documentation is a key.

With BOI, I would recommend people to talk to legal counsel right off the bat to understand the nature of the work, particularly in their jurisdiction. Again, I can't stress enough that this isn't a yes or no, whether or not you should take on the engagement.

There's a lot of factors that come into play, including your jurisdiction laws and also your insurance carrier. What are they saying? How are they handling this perspective? Again, have thorough documentation, acceptance procedures, make sure that you talk that through with the client if you are going to take it.

I would say provide a distinct and separate engagement letter if you are going to do BOI to address specificity of BOI. And, if you're not going to take on this engagement, make sure you have very clear language and all your other engagement letters saying you are not doing BOI work with it. Then of course, you have to keep up-to-date, Larry.

Gray: Just to follow up on the last two questions. One, Melanie, I think you had a very important point.

The thing I stress is the engagement letter. This year we're putting in a paragraph in all of our engagement letters saying this engagement is not part of BOI. But I think it's so important even in our engagement letters for BOI. we're very specific because, at this point in time where we're at, we're going to determine what we're going to look at with the client, look at their business and say, yes, we can help you and here's what we're going to do.

Now we haven't gotten to the point of we're going to do a frequency update to keep compliant. If the client says we had to change, we want to educate them. But I think the engagement letter is so critical to be very clear to where it starts and where it stops.

And, then Roger, back on the communications. We're putting it in our newsletter. We have a trifold out front. I'm doing a YouTube on it. I'm reaching out to do some local speaking engagements — free. Things like the real…we're offering it to banks because it is so critical.

But one of the most important training elements and communication is our staff. The staff needs to know where we're at on this because my biggest concern with a staff of about 10 is the off-the-cuff advice. We have there inside the building, there's going to be three-point people to take care of that situation. I think communications and training.

Walker: Roger, you mentioned about the change. We worry about change in somebody's driver's license or what have you.? How are you thinking about letting the client know that they need to let you know or how are you tracking that information or how are you not tracking it? I guess is a better part of that question.

Harris: Yeah. That's something we're actually looking into right now because I think all of us have the desire to want to help our small business clients. Because, know they're coming to us to help them with this, and so we're trying to balance a client's desire and protecting ourselves.

I think we're all going to settle in and find the right mixture of what we do, whether we just do advice, we do advice and initial filings, we do advise the initial filings and updates. Whatever we settled in, we have to be very clear in our communication what we will do, what we will not do.We can't leave anything for interpretation.

Then we need proper engagement letters and whatever. We all start with the same goal; we want to help our clients. We know we are a resource that they want to call them. We're trying to find a way to help them, but also protect ourselves and we'll settle in on that.

We don't have the answer yet. The only answer we were told about updates is be clear. Be clear that you're either doing it or not doing it. Don't leave it up to interpretation, so that when something doesn't get done, the excuse is I thought you were doing it. We're clear in that. Now we're trying to figure out how to be clear and whether or not we can do it or be clear and tell him we're not going to do it.

Lauridsen: I'm going to chime in here and I'm going to add onto what Larry said and then what you said, Roger, about clarity. Also, with engagement letters and in communications with the client, be clear as to what your scope is.

For example, you guys have talked about this straightforward entity arrangement where you know who the beneficial owner is. When they provide you that information, it's clear that you're not providing advice to them. They're giving you that information and you're handling it from an administrative perspective to help them out. It has to be made crystal-clear that you're not providing advice on that.

Walker: Roger, I am on various webcasts doing Q&A and I get the same questions over and over again. I'd love if I could pick your brain on a few of the frequently asked questions that I get.

Let's start with schedule C, disregarded entity LLCs, are they required to file?

Harris: Probably the best way I can answer that is because it's like everything in the world we live in — it depends. That's the answer that we all give.

Think about it this way. Did you register that entity with your state? I can't speak for all 50 states. I know here in Georgia, if you're a sole proprietor or single, you don't do anything, you just become one.

But if you have any registration with the state and you meet the other qualifications about number of employees in size, then, I think it would apply to you.

Again, it may be dependent on where you are, and do you need to register your entity? Again, this is part of the problem. We have no history of court cases, nothing to look back. I'm falling back on the broad rule.

If you register with your state, this applies if you're within the size and others.

Walker: I'm in North Carolina and if you create an LLC, you have a yearly LLC report requirement, which to me says you registered with the state.

If you're having to continually file an annual report that feels like registering to me. But like you said, we're going to have to flush some of this out.

Another question I get…because on one of the exemptions it says accounting firms, just very brief accounting firms. But then if you dig into the FAQs, it says something more specific. Are accounting firms which are people listening today for the most part, do they need to file?

Harris: All the exemptions that are listed, be careful and read what they really mean. They're not as broad as we would like to think they are, there are very specific examples in there. I would say that most of the people listening to this podcast are not covered by that exemption, though there clearly are some.

But Melanie, I'll let you speak from the AICPA standpoint, but it's like anything. When it's taxes or something we read until we get where we want, then we stop reading. Don't stop here. Keep reading because you're not going to be as happy.

Lauridsen: So Roger, I think you'd make a good point. The FAQs within FinCEN's FAQs, they have the list of the 23 exemptions and one of them says accounting firms. But that's just the title because when you actually read and dig into what that means, it's the accounting firms that are registered under Sarbanes-Oxley to be able to do public audits for public companies.

There aren't too many of those companies that are registered to be able to do these audits, I would say, like Roger said, the majority of those listening to this most likely don't qualify for the exemption and do need to file.

Walker: Another question I see a lot, what about inactive entities. There is an exemption. But again, like you said, you've got to follow through the whole thing.

I think it's six things that have to be met. But what is your thoughts on things to consider for active entities? Then I'll add on, if you dissolved or terminated during the year, is there a requirement to report that? Do you have to say I'm done reporting?

Harris: I'm going to be honest, I certainly hope so that you can take yourself out of this mess at some point if you're out of it. But those are some of the challenges.

There's reporting agent requirements. If you become a reporting agent, you're there forever if you've set it up. But if you are a preparer or whatever they call it and you want to change, there's all of these things about how you change this or how you change that, what you do that I don't think are crystal clear and I think we have some guidance that says if your entity has done that, you mentioned these six things, you're inactive, and a $500 a day penalty when you don't really know the answer, what's the safest thing to do?

Hunt through an attorney or do it because it's cheaper to do it than to put yourself out there for penalty because again, we have no history of how a situation will be looked at by FinCEN and determine whether you complied or not complied. And that's why we find ourselves in a, listen, for all the criticism people give the IRS, at least they've got guidance, we've got history, we've got things to fall back on. For most of us, this is the biggest interaction with FinCEN.

Walker: Only with FBARs and I think that's what trips a lot of people up is FBARs are reported on or can be reported with a tax return and so people are just so confused.

Just to clarify, is there a report, is there something that can be filed with your accounting software? How do we think this is going to do? Melanie.

Lauridsen: With regards to how you can file. When you start FinCEN, there is no form out there. They have not released it. There will be software on FinCEN's website, supposedly January 1st. We haven't seen it, it's not live, it's not out there.

What FinCEN has also said is they are working to be able to provide third-party software similar to what they did with the FBAR, where third parties or third parties on behalf of, in this case, small businesses will be able to file for them, but that is coming down the road for right now. According to FinCEN, you have to go to their website and be able to file there. Again, this goes back to the whole point of there's just a lot of information…a lot of unknowns right now.

Walker: Absolutely. I think that's maybe the theme of this. The theme of this podcast is the questions we can answer, the questions we can't, which seems to be more can't than can, but hopefully it's providing some information.

Those are my main, I'll say, frequently asked questions for me. What to do now is, Roger, just think about any final thoughts you'd like to share with our listeners as we are evolving through this requirement. This is definitely not the last you'll hear from us. We are continuing to monitor and provide resources as we know more but just as here we are middle of December getting ready to approach this requirement, what would you like to share?

Harris: I think the advice I would give to the listeners is the same thing I'd give to our people is, first of all, over-advise in terms of the requirement to make sure that everyone is aware of it. That we're aware of it more importantly, but we're going to take advantage of the time that we've been given to find out some of the details that we've discussed here.

So be very aggressive in telling people about the requirement. Be a little hesitant in doing anything until some of these questions that we can answer, we hopefully get answers to and then make sure that you have all the bases covered when you decide how you want to offer this service.

Make sure you have the engagement letters in place, make sure you have the errors and omissions insurance in place, make sure you have the attorney relationships that you need. We will help our clients.

I think at the end of the day, this will settle to somewhere where we'll find our role, we'll find the attorney's role, we'll find the roles that we can all fit and we will help our small businesses comply. But let's take advantage of the fact that we have time to do it, let's be cautious.

But I think, as I said earlier, we all want to help our clients. That's what they come to us for, that's what we want to do. But we have to do it in a right way. The thing that scares me the most is I had a practitioner tell me, how hard is this. It's a form. We fill in forms all the time and I thought this a like all the forms we fill out all the time, so be a little careful. Let's be careful, but let's try to help our clients.

We'll find our role. I think we're just never land right now where we're still trying to let it settle, but we'll find our role and we'll do a good job and we have the best interests of our clients at heart and I think as long as we're cautious, that will serve as well.

Walker: Wonderful. Thank you, Roger and thank you so much for joining us today. Larry, can you give me some final thoughts as we're thinking about this requirement?

Gray: Yeah. The final plot would be as Roger and Melanie and I have said, you've got to decide what you're gonna do. You have to at least make the client aware, that's a given.

I think beyond that, what you have to realize is be clear in the engagement letter. I think also, you have to stay current. As I said, FinCEN is updating the frequently asked questions. They updated eight of them, two days scope, but it's almost weekly. Now what I have to do is look at the small engagement guide that they have, which is very good. But there's frequently asked questions. That guide hasn't been updated yet.

I would say clear communications including your engagement letter and I think the other thing is stay current on the FinCEN website. You can go online and ask to be sent out notifications. We will work through this and your current clients, you probably want to wait till later in the year. Melanie, April, I so thank you for including me.

Walker: Thank you so much, Larry. Melanie, I'd love for you to give some final thoughts. Just as I'm thinking before you go, just there's…and hopefully you'll hear today, there's a variety of approaches to this. There's a variety of ways that you can approach it and you don't have to know right now, but it would be helpful if you have thought about it and thought about the risk so that when you are dealing with your clients during tax season, you are able to say, here's the requirements. I'm not going to do it, but he can hear some alternatives, or I am going to do it, but you will have to provide me the information and I can help you with the reporting.

If there's any advice that needs to happen. It cannot come from me, it has to come from an attorney. That's my final thoughts. What about you, Melanie?

Lauridsen: I agree. This is new and it seems scary, but keep in mind back in the day, even the practice of tax was considered unauthorized practice of law. So things evolve and things change.

I think once we get more clarity, it will settle and ultimately, Roger can talk about those too. When he's approached lawyers, a lot of the lawyers don't even know what they are. We've found that they don't want to take on this engagement and who does that leave the small businesses to turn to?

I also know that CPAs and tax professionals, it is in their nature to want to provide services to their clients. Larry and Roger, and I echo the sentiment have said over and over again, we'll figure this out. We just need a little bit more time, a little bit more information, and I think we're going to get there to be able to help the client. I do think it's our responsibility to be able to provide a service and I'm not saying it has to be a why, but it did provide a level of service to our clients.

Walker: Wonderful, thanks. Alright, thanks everyone. Again, this is April Walker from the AICPA Tax Section. This community source for technical guidance and resources designed especially for CPA tax practitioners like you in mind. This is a podcast from AICPA and CIMA together as the Association of International Certified Professional Accountants. You can find this wherever you listen to your podcasts and we encourage you to follow us so you don't miss an episode. If you already follow us, thank you so much and please feel free to share with a life founded friend. You can also find us at aicpa-cima.com/tax, and find our other episodes as well as resources mentioned during this episode and others. Thank you for listening and wishing everyone a safe and healthy holiday season.

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