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Corporate Transparency Act Requirements Pose Dilemmas for Accountants

S.J. Steinhardt
Published Date:
Mar 14, 2024

GettyImages-1134157197 Treasury Department Building

The Corporate Transparency Act (CTA) went into effect on Jan. 1 and, as some businesses may turn to their accounting firms for help, tax professionals must be careful about what they say, Accounting Today reported.

The law aims to deter money laundering, corruption and other forms of criminal activity by shell companies by requiring certain companies to disclose information about who actually owns or controls them, known as beneficial ownership information (BOI). Companies existing before Jan. 1, 2024, will have one year to report BOI, while companies created or registered after Jan. 1 will be required to report BOI within 90 calendar days of their creation or registration. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN)  started accepting BOI reports at a new online registry that opened on Jan.1.

Accounting professionals told Accounting Today about their experiences advising their clients about the law’s requirements.

"We've informed clients that they're responsible to file the BOI," said Scott Kadrlik, managing partner at Meuwissen, Flygare, Kadrlik & Associates in Eden Prairie, Minn. "The data needed is very personal and, once they gather it, they can easily file the information rather than pay us to do so."

Gail Rosen, a CPA in Martinsville, N.J., said, "We represent many businesses and very few asked us about BOI reporting requirements," she said. "We did have one new business that started in 2024. They are knowledgeable and knew about the BOI requirements and were able to fulfill the filing on their own."

One top 100 firm, Sikich LLP, will not offer BOI services, telling its clients to reach out to their attorneys or handle it in-house.

“The BOI reporting requirement will create a big burden for accounting firms that provide these services, since some fairly common situations, such as if a beneficial owner moves, can create a new filing requirement—requiring the accounting firm to not only know about that move, but file a new BOI report within 30 days or face potential late-filing penalties," said Neil Keller, the firm’s Milwaukee-based partner in charge of tax.

Penalties for willfully violating the requirement can rise to hundreds of dollars a day, criminal fines and imprisonment, Accounting Today reported. 

On March 1, a federal judge in Alabama ruled that the CTA and the BOI requirement were unconstitutional, saying that the legislation exceeds the powers granted to Congress. In response, on March 11, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice stating that "[t]he government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that [Alabama ruling] … Other than the particular individuals and entities subject to the court's injunction … reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN's regulations."

The U.S. Department of Justice (DOJ) appealed the decision earlier this week.

Another complication is whether accounting firms run a risk of off-the-cuff advice constituting legal practice when trying to help clients with BOI. As of a few months ago, no state bar had determined whether advising on a BOI engagement constitutes the unauthorized practice of law for non-attorneys, according to the AICPA/CIMA’s "Traversing The Beneficial Ownership Information Reporting Requirements webinar.

“We believe the rule should be suspended until the small business community is considered well-informed of their requirement," the AICPA/CIMA wrote in a letter to leadership of the Senate Banking Committee and the House Financial Services Committee in February, warning that, despite extensive outreach and education efforts to inform small businesses of their new obligations concerning BOI, many businesses remained "broadly unaware" of their reporting requirement. 

Insurance carriers have begun to address potential coverage questions for accounting and the BOI.

Carrier CNA's professional liability policies for accountants will generally cover "professional services associated with the CTA by an insured accounting firm," its says in its primer, "Coverage Considerations: Services Related to the Corporate Transparency Act."

But the company mentioned two issues raised by the CTA that may have coverage implications. One is that certain activities that may be performed by accounting firms in order to assist a client with their compliance with the CTA could involve the practice of law. Another is that Treasury’s  FinCEN's Frequently Asked Questions regarding BOI reporting states that "an individual who willfully files a false or fraudulent beneficial ownership information report on a company's behalf may be subject to the same civil and criminal penalties as the reporting company."

"Our malpractice insurance carrier has told us that they will not insure us if we file the BOI, as it's considered an unauthorized practice of law by an accountant," said Rosen.

She called the requirement “a huge, unfair burden for accounting firms, especially smaller firm, adding, "When we reach out to clients and tell them they must fulfill this requirement, some clients will bombard us with questions, some clients will ignore it and some will not be able to do this on their own. I fear that accountants will be on the receiving end of this problem.”