Hey business owners, have you heard about the Corporate Transparency Act (CTA) Beneficial Owner Information (BOI) and its new requirements for reporting? It’s like the government just handed us a puzzle, but forgot to give us the picture on the box. Don’t worry, though. I’ve got some insights that might just help you figure out whether your attorney or accountant should be handling this for you.
The Impact of CTA Beneficial Owner Information on Beneficial Owners
First off, let’s talk about the elephant in the room: the CTA Beneficial Owner Information requirements want to know a lot about business owners, like your home address, to be put in a government database. If you’re like most of the clients I’ve talked to, this might not sit well with you. And here’s the kicker – if you don’t comply, you’re looking at a hefty $500 per day penalty and even a potential felony charge. Ouch!
The Role of FinCEN IDs in Corporate Transparency Act Beneficial Owner Information
One thing I’ve learned is that FinCEN IDs are like golden tickets here. They simplify the whole process, especially if you’re involved in multiple entities. Here’s how it works: if your information changes, like your address or driver’s license, you just update it under your FinCEN ID. No need to notify every single entity you’re a part of. I had a couple, let’s call them Bob, and Mary, who are involved in five different businesses. You can imagine the relief when they found out they didn’t have to update all of them separately! So, to simplify things, obtain your FinCEN ID ASAP, and notify the entities in which you have ownership of it. But remember- you must keep this information updated as well! If anything changes with your address, or your ID, make sure to notify FinCEN in your profile.
The Role of CPAs in CTA Beneficial Owner Information Compliance
As a CPA, I have to tread carefully with the CTA Business Owner Information. Even if I’m not filing directly, just responding to questions or assisting, I may be unable to help clients. It’s a bit like walking on a tightrope. I have to be well-informed about the CTA Business Owner Information but also know my limits. For simple structures like 50/50 partnerships using FinCEN IDs, it’s usually smooth sailing. But things can get tricky with more complex situations. The government wants anyone with an ownership and control interest disclosed – this means if you are passively involved in rental units, with multiple partners, and you hire a manager to oversee them, you must obtain personal information about the manager! Can you imagine talking to your apartment complex manager, and explaining to them they need to sign up on the FinCEN website to obtain a FinCEN ID? – It very well may come to that, and you may want to make sure they are legally required to give that ID to you every year. You may also want to ensure your partner(s) in the business are legally required to give that FinCEN ID to you every year as well- because if you file as the representative of the partnership, you are exposing yourself to a $500/day unlimited penalty, that is a federal felony if things are willingly undisclosed that should be disclosed! As much as I want to help all of our clients – we cannot help you with legal documents or legal advice and this is where having a lawyer assist in filing your forms, may make a lot of sense. Your lawyer may need to send a few “nasty” grams to bully your partners, or others who said they’d provide you the information, to provide it! As a CPA Firm – I can guarantee you having us send the request, or seek that information will not be responded to very promptly or at all- the lawyers will do a much better job at this than we will!
In all cases most clients want their information as private as possible, and we are guessing you like many others will want to only disclose as much as you have to legally- unfortunately in the case of CTA Beneficial Owner Information as a CPA Firm if you have us file on your behalf, we are recommending disclosure of everything that could be questionable due to the lack of guidance we currently have. If you are looking to exclude individuals, who we believe should possibly be disclosed, we will not be filing on your behalf- we will be requesting clients seek out the help of a qualified attorney to analyze their facts and circumstances and give them a legal opinion on the law to exclude them- something we as a CPA Firm cannot do, as we could be penalized for the Unauthorized Practice of Law (UPL). This is in your best interest, as the law is unclear, and having an attorney analyze your facts and circumstances, will allow you to share the liability of $500/day and a possible felony for willful non-disclosure- something everyone leaving a possible individual off a disclosure should absolutely want to do – no matter how large the fee is for the analysis and filing, if the issue goes unnoticed for a whole year, it is a maximum of $10,000! No need to take unnecessary risks, right?
The Role of Lawyers in Navigating CTA Beneficial Owner Information
As you can see above lawyers have got their work cut out for them, especially with trusts. Many individuals have signed up to help their friends or acquaintances with their estates, and also help their trusts. Many of these were formed decades ago, and no one had the THOUGHT that we could see FinCEN and our government even ask for this information for ANYONE with trust powers! So what are the lawyer’s having to do now? Well imagine having to ask people for very personal information for government reporting, who signed on to help a trust decades ago– it’s not exactly a fun conversation! Like this one time, a lawyer friend of mine had to explain to a client why they needed their personal info for a trust they barely remembered being a part of. Talk about a delicate situation!
Lawyers will also need to work closely with us accountants to get the full picture. And just like us, they’re playing it safe by disclosing everything that even remotely smells like a BO (Beneficial owner) issue (pun intended!). However they will be able to legally analyze really specific agreements and complexities, and also assist you in sending some nasty grams to get your partners, and employees to comply with your request to make them obtain a FinCEN ID # , or information so you can file on time, and not get penalized!
The Cost Implications of CTA Beneficial Owner Information Compliance
Let’s talk money. Compliance with the CTA Beneficial Owner Information isn’t cheap. For complex trusts and entities with a bunch of BOs (25+), you could be looking at upwards of $10,000. This, will typically be $400-$600 per beneficial owner. Even for simpler cases, the costs can be surprising to clients. You might say, “Why so much for just a simple disclosure?” But trust me, there’s a lot that goes into it. There are issues with owner attribution, due to family and business relationships, non verbal agreements that have profit sharing motives and control issues. Any changes also need to be updated within, 30 days! It’s a lot more complex than the government would like you to know at this point (isn’t that odd!).
Impacts on Lending and Other Financial Transactions
The CTA Beneficial Owner Information ripple effect even reaches lending institutions. Much like them asking for your tax return filing, they’re likely going to require proof of CTA Beneficial Owner Information compliance because nobody wants to deal with those hefty fines or felony charges. Imagine a banking executive, approving a massive loan to an established company. Only to later find out they haven’t been disclosing a foreign investor, for years. Ouch!
Companies preparing financial statements, will also likely be asked about the CTA Beneficial Owner Information filing, just because the liabilities of non filing are so large! If you didn’t file, that liability will need to be put on your balance sheet in most cases, especially if it is an assessed fine! It’s a whole new world, folks.
Future Expectations and Expansions of the Program
And just when you think you’ve got a handle on things, there’s always the possibility of changes down the line. The federal government might just expand the program to include private trusts. Currently this applies to any entity formed in any state, by utilizing the secretary of state in that state to form the entity. Based on the Biden Administration’s prior “Greenbook” which aimed to increase estate and trust taxation and disclosure, the CTA Beneficial Owner Information reporting system and disclosure, is very similar to what they wanted private trusts (trusts that are formed with no filing needed at the secretary of state office) to disclose to the government about their owners. It is likely that once the Beneficial Ownership Secure System (BOSS) is live, and is processing their Beneficial Ownership Information (BOI) reports at a later date they will use the system for other disclosures- such as private trusts! So, staying on top of these requirements is going to be key.
Conclusion
So, should your attorney or accountant file your CTA Beneficial Owner Information report?
In general your accountant should be your first stop. But when things get complex, or if there’s any uncertainty, a lawyer’s expertise could be invaluable. After you have read this article, you’ll have a lot more information than most accountants (EA’s/CPA’s) currently know about this program. Unfortunately many in the accounting profession are behind the curve on pending and current legislation. Some- get this- don’t even want to assist clients AT ALL navigating this issue, because they are scared of any liability. That doesn’t make sense to us, what will they do if you ever got audited by the IRS? Run away?!? If you are uncomfortable with the answers your accountant is providing, or they do not show much knowledge or interest in helping you, we’d love to have you become a client at Corridor Consulting!
Remember, we’re all navigating these new waters together. Staying informed and seeking professional advice is crucial. At Corridor Consulting we’re always opening new doors for clients, and also helping them navigate the complexities of unchartered territory – even if it means we cannot fully help you file something, or assist you in something that could possible be deemed the practice of law, we can still fully assist you navigating an issue, and point you to individuals who can advise you better! We also will never run away from learning and educating ourselves on something new, to assist our clients at a time they are in need! Isn’t that the main reason why you pay a professional firm? We think so, so take the first step towards clarity and confidence in your business decisions. Schedule your Discovery Session with me today. Let’s explore how our expertise can specifically benefit your business.
James C. Yochum, CPA
Corridor Consulting