Corporate Transparency Act: Key Considerations for CPAs and Clients on Beneficial Ownership Reporting

At Tonneson, we are currently looking into the best ways to help our clients comply with the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA). Many of our clients have reached out for our assistance; however, our ability to assist has been limited by concerns that the BOI reporting compliance is not within the scope of the Title 26, Internal Revenue Code, under which CPAs are considered qualified and able to render professional services.

Understanding the Corporate Transparency Act (CTA)

The CTA is a federal law aimed at increasing transparency in corporate ownership to combat illicit activities such as money laundering and tax evasion. Under this act, certain entities are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Who Needs to File?

The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs) including single member LLCs (SMLLC), and other legal entities created through documents filed with state authorities. This may include some foundations, trusts and sole proprietorships depending on their structure. Additionally, foreign entities registered to do business in the U.S. must comply. However, there are 23 types of exempted entities, including financial institutions, government units, public charities exempt under 501(c)(3), and an exemption for large operating companies. The large operating company exemption under the Corporate Transparency Act (CTA) applies to entities that meet all three of the following criteria:

• Employ more than 20 full-time employees in the United States.
• Have an operating presence at a physical office within the United States.
• Filed a U.S. federal income tax return or information return for the previous year showing more than $5 million in gross receipts or sales, net of returns and allowances, excluding gross receipts or sales from sources outside the U.S.

This exemption is designed to reduce the reporting burden on larger, established companies that are already subject to significant regulatory oversight.

What Information Must Be Reported?

Reporting companies must provide detailed information about their beneficial owners, including:

• Legal name
• Address
• Date of birth
• Unique identifying number (e.g., U.S. passport or state driver’s license number)
• An image of the document containing the identifying number

Additionally, the Company Applicant, the person responsible for filing the entity’s formation documents, must also be disclosed.

Legal Concerns for CPAs

The American Institute of Certified Public Accountants (AICPA) has issued several alerts to its members, indicating that preparing the BOI forms on behalf of our clients may constitute the unauthorized practice of law (UPL). Each state’s Attorney General will make this UPL determination at the state level. In December 2023, our state CPA society (MassCPAs) sent the Massachusetts Attorney General a letter asking her to rule on this issue. As of now, Massachusetts has yet to rule on this matter. We have also contacted our insurance provider to determine their position on these services and await their opinion.

Legal Challenges to the CTA

The National Small Business Association (NSBA) has filed suit in Alabama, claiming that the CTA is unconstitutional under several amendments of the US constitution. In March of this year, the Federal district court agreed with the NSBA that Congress exceeded its power and granted summary judgment relief to NSBA members only. The case is now on appeal in the Eleventh Circuit. Similar cases have been filed in Alabama, Maine, Michigan, Texas, Ohio, and Massachusetts.
In Massachusetts, the Black Economic Council of Massachusetts, Inc., et al. v. Janet Yellen et al. case seeks to declare the CTA unconstitutional and obtain a permanent injunction against its enforcement. There has been no substantive activity on the docket thus far.

AICPA’s Position and Recommendations

The AICPA and many state CPA organizations have written to the United States Department of Treasury, requesting that enforcement of the CTA reporting requirements be suspended until one year after all court cases have been resolved. The concern is that many small businesses will still be caught off guard by the CTA reporting requirements due to the confusion surrounding the court cases and introduced legislation

Final Thoughts

Given this information and the sensitive nature of the information necessary to comply with these forms, clients may want to take a “wait and see” approach until the last few months of the year to see if any changes occur regarding the law or if Congress decides to delay the due date of the filings.

In the meantime, the MassCPAs is continuing to pursue the Attorney General’s position on how CPAs can assist their clients with these requirements. Once we have clear guidance, we will reach out to our clients, most likely in November. If clients prefer not to wait, we advise you to seek the advice and counsel of an attorney qualified to assist in the preparation of these forms.