Understanding Beneficial Ownership Reporting: Essential Guidance for CPAs

ARTICLE | December 11, 2024

Understanding Beneficial Ownership Reporting: Essential Guidance for CPAs

In an increasingly complex regulatory environment, Certified Public Accountants (CPAs) play a pivotal role in helping businesses navigate new compliance requirements. One of the most significant changes on the horizon is the implementation of the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA). Understanding these new mandates is essential not only for maintaining compliance but also for upholding the trust and integrity that clients place in their CPAs.

Introduction to Beneficial Ownership Reporting

What Is Beneficial Ownership Information?

Beneficial ownership refers to the individuals who ultimately own or control a company, even if the company's legal title is in another name. The BOI reporting requirements aim to shed light on these individuals to prevent illegal activities such as money laundering, tax evasion, and financing terrorism. Under the CTA, certain entities are required to disclose detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Regulatory Background

The Corporate Transparency Act, enacted to combat illicit financial activities, mandates the collection of BOI to enhance transparency in corporate structures. By requiring companies to report their beneficial owners, the CTA seeks to close loopholes that allow anonymous shell companies to facilitate illegal activities. This shift represents a significant change in the regulatory landscape, demanding heightened vigilance from businesses and their advisors.

Effective Dates and Deadlines

Compliance with the BOI reporting requirements hinges on key deadlines:

• Entities Formed Before January 1, 2024: Must report BOI by January 1, 2025.
• Entities Formed in 2024: Required to report within 90 days of creation.
• Entities Formed On or After January 1, 2025: Must report within 30 days of creation.

Additionally, any updates or changes to previously reported BOI must be submitted within 30 days of the change. Staying attentive to these timelines is crucial to avoid penalties and maintain compliance.

Key Reporting Requirements

Entities Required to Report

The CTA's reporting requirements apply to "reporting companies," which include corporations, limited liability companies (LLCs), and other similar entities created by filing registration documents with a state or tribal jurisdiction. Significantly, the Act has expanded to include new entity types such as limited liability partnerships (LLPs) and certain foreign entities conducting business in the U.S.

However, there are 23 exemptions to these requirements. Entities exempt from reporting include banks, publicly traded companies, nonprofit organizations, and certain large operating companies. It's important for businesses to verify whether they fall under an exemption or are required to comply with the new reporting standards.

Information to Be Reported

Reporting companies must provide FinCEN with detailed information about each beneficial owner and the company itself. This includes:

• Beneficial Owner Information: Full legal name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a passport or driver's license).
• Company Information: Legal name, any trade names or "doing business as" (DBA) names, business address, state of formation, and taxpayer identification number.

Reporting Process

FinCEN has introduced the BOI-eFile system, an online platform designed to streamline the reporting process. Through BOI-eFile, entities can securely submit their BOI reports, ensuring that information is accurately recorded and easily updated as necessary. Familiarity with this system is essential for timely and correct submissions.

Penalties for Non-Compliance

Failure to comply with BOI reporting requirements can result in severe consequences:

• Financial Penalties: Fines of up to $500 per day until the information is reported.
• Reputational Risks: Non-compliance can lead to increased regulatory scrutiny, damaging client trust and the firm's reputation.
• Legal Implications: In some cases, willful non-compliance may result in criminal charges, affecting the firm's stability and professional standing.
• Increased Scrutiny: FinCEN's enhanced collaboration with state authorities and financial institutions means discrepancies are more likely to be detected.

How CPA Firms Can Prepare

Review and Update Ownership Records Regularly

Maintaining accurate and up-to-date ownership records is the first line of defense against compliance issues. Firms should implement robust procedures to track any changes in ownership or control structures. Regular audits of these records can help identify discrepancies early and ensure that any required updates are reported within the stipulated 30-day window.

Familiarize Your Team with BOI Reporting Platforms

Training staff on the BOI-eFile system is crucial. By understanding how to navigate and utilize the platform effectively, firms can reduce the risk of errors or omissions in their submissions. The system offers tools for cross-verification of data, which can further enhance accuracy and compliance.

Implement a Compliance Strategy

Developing a comprehensive compliance strategy is essential for managing the new reporting requirements. This includes:

• Establishing Standard Procedures: Create clear protocols for data collection, reporting, and record-keeping related to BOI.
• Assigning Compliance Roles: Designate a compliance officer or team responsible for overseeing adherence to the CTA and other regulations.
• Scheduling Regular Audits: Conduct periodic reviews of processes and filings to ensure ongoing compliance and identify areas for improvement.

Leverage Automation to Simplify Compliance

Embracing technology can streamline compliance efforts:

• Document Management Systems: Use software to automate data collection and manage documents required for BOI and tax compliance.
• Automated Reporting Tools: Implement systems that can handle timely submissions and monitor deadlines.
• Cybersecurity Measures: Protect sensitive client information with advanced security tools to prevent data breaches and comply with privacy regulations.

"By proactively addressing BOI reporting requirements, CPAs not only safeguard their firms from penalties but also reinforce their commitment to ethical practices and client trust."

- Don Breckenridge

Additional CPA Regulations to Be Aware Of

Data Privacy and Cybersecurity Regulations

The regulatory landscape in 2025 is not limited to BOI reporting. Data privacy and cybersecurity have taken center stage as states implement stricter laws to protect personal information.

• Data Privacy Standards: Many states now require consent-based data collection and grant clients greater control over their personal data.
• Enhanced Cybersecurity Measures: Regulations like the Federal Trade Commission's (FTC) updated Safeguards Rule mandate encryption of sensitive data and regular vulnerability assessments.

How to Prepare

To meet these new standards, CPA firms should:

• Invest in Cybersecurity Infrastructure: Implement robust security measures, including firewalls, encryption protocols, and secure data storage solutions.
• Conduct Staff Training: Educate employees on best practices for data handling, recognizing cyber threats, and responding to potential breaches.

Tax Regulation Updates

Changes to tax regulations are also anticipated, affecting how CPAs manage workflows and advise clients.

• Updated Filing Requirements: New standards for partnerships and complex entities may require additional disclosures and reporting.
• Adjustments to Deductions: Potential changes include restrictions on certain business expense deductions and modifications to depreciation rates.

How to Prepare

Preparation strategies include:

• Ongoing Training: Keep the team informed about tax law changes through regular training sessions and professional development.
• Client Advisory Services: Proactively communicate with clients about how these changes may impact their financial strategies and offer guidance on adjustments.

MBN & Company's Expertise in BOI Reporting and Compliance

At MBN & Company, we understand the complexities and challenges that new regulations bring to CPA firms and their clients. Our Tax Services Group comprises over 60 professionals, including certified public accountants, chartered global management accountants, and specialists in estate planning and business taxation.

We are committed to helping clients navigate the intricacies of BOI reporting and compliance. By leveraging our extensive experience and staying abreast of the latest regulatory developments, we provide tailored solutions that meet our clients' unique needs.

Our approach includes:

• Thorough Understanding: We take the time to understand your business operations, concerns, and objectives.
• Proactive Communication: Regular updates and open lines of communication ensure that you are always informed about relevant changes.
• Strategic Planning: We help structure business transactions in tax-advantageous ways while ensuring compliance with all reporting requirements.

Conclusion

The advent of the BOI reporting requirements under the Corporate Transparency Act represents a significant shift in the regulatory environment for businesses and CPA firms alike. Understanding and adhering to these new mandates is essential to avoid penalties, protect your firm's reputation, and maintain the trust of your clients.

By taking proactive steps—such as reviewing ownership records, training staff, implementing compliance strategies, and leveraging technology—CPAs can navigate these changes effectively. MBN & Company is here to support you through this transition, offering expertise and personalized services to ensure your firm and your clients are well-prepared for the future.

Contact us today to learn how we can assist you in understanding and complying with beneficial ownership reporting requirements.

About the Expert

Don Breckenridge

Email: don.breckenridge@gmail.com

Don Breckenridge is a seasoned Certified Public Accountant with a wealth of experience in tax compliance and advisory services. Specializing in navigating complex regulatory environments, Don has a deep understanding of beneficial ownership reporting and the Corporate Transparency Act. He is dedicated to helping clients achieve compliance while optimizing their tax positions.