Are You Ready for Beneficial Ownership Compliance Reporting?

Marty Green, Esq. Senior VP and Legislative Counsel, Illinois CPA Society
The Latest on Advocacy and Legislation

By now, you’ve likely seen a number of warnings on the upcoming beneficial ownership information (BOI) reporting requirements imposed by the Corporate Transparency Act (CTA). Beginning Jan. 1, 2024, the CTA will require small business entities in the United States and non-U.S. entities—including CPA firms—to report information about their beneficial owners (i.e., the persons who ultimately own or control the entities) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Overall, the goal of the CTA and beneficial ownership reporting requirements is to combat “dirty money” issues, including tax evasion, money laundering, and other financial crimes. Though, I’d add that the name itself, “Corporate Transparency Act,” is somewhat deceiving in that the reporting requirements are far reaching for small businesses.

Of course, with the effective date fast approaching, now is the time to familiarize yourself with these reporting requirements. After all, being prepared to advise your clients or companies, and execute these required filings on their behalf, will be an essential service as their trusted and strategic advisor.

That said, here are some questions and answers you need to know:

1. What’s considered a reporting company? Generally, there are two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company, or other entity created by filing with the secretary of state within the U.S. A foreign reporting company is a corporation, limited liability company, or other entity formed under the law of a foreign jurisdiction and registered to do business in the U.S.

2. Are there exemptions? There are 23 types of entities exempt from reporting, many of which are already subject to substantial federal and state regulatory reporting and oversight. Generally, qualifying entities exceed $5 million in gross receipts and have 21 or more full-time employees. At first glance, it may appear that your accounting firm may be exempt from BOI reporting; however, exemptions only apply to firms registered with the Public Company Accounting Oversight Board as required by the Sarbanes-Oxley Act of 2022, and those with more than $5 million in gross receipts and 21 or more full-time employees.

3. What information needs to be reported? Entities required to meet the new reporting requirements are obligated to identify and report beneficial owners. Notably, beneficial owners are defined broadly in the CTA. If by chance a company is owned by another company, further inquiry will be necessary to identify the person owning the parent company. Overall, beneficial owners include those with substantial control, such as a person with indirect or direct ownership equal to or greater than 25% of the company, or a company applicant. For domestic entities, the company applicant is the person who directly files entity-creation documents with the secretary of state. For foreign entities, this would be the individual who first registers the entity to do business in any state.

Additionally, the company and beneficial owners and company applicants will have to respond to 50-plus questions, including details about the reporting company, beneficial owners, and company applicants.

4. What are the penalties for not reporting? The final rule provides for both criminal and civil penalties for reporting violations. Civil penalties may include $500 for each day the violation continues. Criminal penalties may include up to $10,000 in fines and imprisonment of up to two years. My sense is the criminal process is reserved for willful misconduct and fraud.

Of course, entities must begin reporting BOI by Jan. 1, 2024, and must do so through FinCEN’s secure electronic filing system. All initial reports must be completed before Jan. 1, 2025, and any changes in previously reported information will require supplemental reporting within 30 days of those changes.

On Sept. 18, 2022, FinCEN released a guide to assist small entities in complying with the reporting requirements. The Illinois CPA Society (ICPAS) has posted this guidance and other resources on the Government Relations page of the ICPAS website.

With so much uncertainty surrounding these reporting requirements, ICPAS, along with the AICPA and other state CPA societies, have been working with their respective Congressional Delegation members to pass legislation extending the initial reporting deadlines. Additionally, ICPAS is part of a coalition of state CPA societies that signed onto an AICPA letter to FinCEN commenting on proposed agency regulations and asking for a delay in the BOI reporting implementation. As we continue to monitor this situation, we’ll of course provide any necessary updates to our members.

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