With mandatory beneficial ownership information (BOI) reporting beginning this year, it is an excellent time to consider what this may mean to tax professionals and their business clients. The BOI filing obligations under the 2021 Corporate Transparency Act (CTA) appear to be reasonably straightforward, but tax preparers need to understand that there may be legal ramifications to helping clients file the reports with the Financial Crimes Enforcement Network (FinCEN). Even answering simple questions regarding a client’s filing obligations could lead to problems.
The following is intended to give tax preparers a quick overview of BOI reporting and issues they should consider when working with clients who must file reports for the first time in either 2024 or 2025. For a more detailed breakdown of the BOI filing requirements and how to handle client communications, check out our webinar: Corporate Transparency Act: Reporting the BOI with FinCEN.
What is BOI reporting?
The CTA was enacted in 2021 to help the government reduce illegal financial activities and requires many companies doing business in the U.S. to report information about the individuals who ultimately own or control the entity. Companies that are required to file the report include corporations, limited liability companies (LLCs), or any other entity created by filing a document with the secretary of state or similar officer under the laws of a state or Indian tribe.
Reporting companies created or registered to do business during 2024 have 90 calendar days to file after receiving notice that their creation or registration is effective. Reporting companies that were created or registered to do business before Jan. 1, 2024, must file by Jan. 1, 2025.
The penalties for failure to file a report can be substantial. Under the CTA, a person who willfully violates BOI reporting requirements by either failing to report or providing false or fraudulent information could be subject to civil penalties of up to $500 for each day the report is not filed. An individual who fails to file could also be subject to criminal penalties of up to $10,000 and two years in prison.
What tax preparers should know
It is a good idea for tax preparers to notify their clients of their filing BOI filing obligations, but preparers are not required to file the BOI reports on their behalf. Despite the relatively uncomplicated filing process, tax professionals need to consider several factors before offering to help a client file. The fact that some tax software products have added BOI reporting functionality does not mean you should do so.
The most significant issue for tax preparers to consider before filing a BOI report on behalf of their client is whether their professional liability insurance will cover that service. Due to the high civil and criminal penalties for erroneous filings, any party making a significant mistake with a BOI report could be liable for malpractice. It is crucial that you know you will be covered by professional liability insurance before filing a report on behalf of a client.
Another major problem that could come up in relation to BOI filings is that some experts believe that filing them on behalf of client may qualify as the unauthorized practice of law. Unfortunately, this question must be addressed by the bar association in your state, and many have yet to do so. If you can’t find a clear statement on the position your state bar has taken on the issue, you will want to reach out to the state bar with your questions. Remember, your professional liability policy will not cover the unauthorized practice of law, so you want to be certain about the answer to this question.
Proactive steps to take with clients
Even if you have no plans to offer BOI reporting services to your clients, or even mentioning the issue to them, there are several steps you should take. First, you should modify your firm’s client engagement letter to specify that you will not provide any BOI reporting services. Second, you and your employees must avoid providing any information to your clients that could be construed as legal advice on questions related to BOI reporting. Stick to generalized statements about reporting requirements and avoid any statements regarding whether a specific client should file, what information they must report and what could happen if they don’t file.
Additional questions? Check out our webinar
If you are looking for more information on BOI reporting and some guidance regarding client communications addressing the issue, we are providing a one CPE webinar on the topic: Corporate Transparency Act: Reporting the BOI with FinCEN Webinar. In addition to an overview of the issue, it will provide information on:
- Letters to send clients to provide an overview of BOI reporting requirements
- Language to include in engagement letters if you are not providing BOI reporting services
- Engagement letters specific to BOI reporting
