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Tax & Accountingsetembro 08, 2023

The Corporate Transparency Act presents significant opportunity for accounting firms

The Corporate Transparency Act is a game-changer for accounting firms: here's how to prepare.

Accounting firms across the U.S. must prepare now to advise their clients and be ready to handle the most significant onslaught of business reporting and filing requirements in decades.  

An estimated 33M businesses, primarily small companies, will be required to file complex and confusing new reports. Accounting firms that are prepared will be positioned to significantly grow their advisory and compliance businesses by enhancing current client engagements and growing their client bases. 

Breaking it down: CTA Beneficial Ownership Information reporting requirements 

Beginning January 1, 2024, tens of millions of small businesses must comply with the Corporate Transparency Act (CTA) by filing a Beneficial Ownership Information (BOI) report.  

Failure to accurately and timely file will result in significant FinCEN (U.S. Department of Treasury's Financial Crimes Enforcement Network) penalties, including $10,000 in civil fines and/or up to two years in prison. Similar to most mandated Department of Treasury filings, many of these companies will reach out to their trusted advisors, most often their accounting firm, for guidance and to outsource the complex and confusing required filings and other compliance activities.   

Industry estimates put the number of entities required to file a BOI report — also referred to as reporting companies — that will reach out to professionals for help with CTA compliance at roughly one-half of those required to file BOI reports- a staggering 18M. Most reporting companies will need their CPAs to handle reporting and gathering data required for accurate reporting.  

Why should BOI reporting matter to public accounting firms? This legislation, while not new, is a new and unique opportunity for accounting firms to acquire new clients, as many companies will need to understand and comply with these new rules. It's also an opportunity for accounting firms to increase their revenue per existing client. Based on FinCEN's estimates of BOI reporting volume, this ongoing revenue increase could reach 10% or more per client. 

Next steps: Take action now to educate yourself and your clients on BOI reporting requirements, including how to identify who will be required to file and what type of information will need to be gathered. Put plans in place to take advantage of this significant opportunity and mitigate any potential liability you may be exposed to due to not being fully up to speed on the rules and regulations.  

Corporate Transparency Act and Beneficial Ownership Information reporting: a brief history 

The Corporate Transparency Act requires tens of millions of small U.S. companies to file Beneficial Ownership Information Reports to FinCEN starting in 2024 as a "reporting company." This new law and reporting requirement is part of the U.S. anti-money laundering regulations included within the National Defense Authorization Act. 

A company is exempt from being a reporting company if it exceeds $5M in gross receipts and has 21 or more full-time employees. There are specific exemptions from BOI reporting. FinCEN's new reports require each reporting company to disclose information about the reporting company and any individual who acts as a beneficial owner, including any individuals with substantial control or unique ownership interests. 

Based on initial estimates by FinCEN, 33,206,418 existing reporting companies will need to file an initial report in 2024. Another 14,456,452 reports are estimated each year thereafter because any information changes within a reporting company mandate filing an "updated report" with FinCEN within 30 days of the change. These changes can be as minor as an owner changing their home address, which will trigger the requirement for the reporting company to file a new report to stay compliant and avoid penalties. 

Accounting firms, large and small, do have the opportunity to take advantage of the growth opportunities offered by CTA. However, it will require a great deal of preparation and education that should begin immediately to ensure the firms are able to be educated on all of the requirements and collect the necessary information to file accurate reports. This service opportunity furthers the objective of many accounting firms of being a full-service provider to their clients.  

How should accounting firms prepare for CTA? 

Most of the entities and individuals subject to CTA requirements are clients of accounting firms. Most typically, CPAs in accounting firms are the "trusted advisors" these entities would approach regarding CTA and FinCEN's BOI reporting rule.  

It wouldn't be a surprise for them to ask, or even expect, the accounting firm to handle BOI reporting, given how involved accounting firms have been in handling business filings during recent years, especially during the pandemic. Firms often have the most detailed information regarding entities and their ownership because of tax returns and other compliance reporting that firms already do for covered entities and their owners.  

To protect the firm — and client — interests, accounting firms should take several steps.

  • Become and stay up-to-date and familiar with the Corporate Transparency Act and its requirements before any other actions are taken. Currently, there is a widespread lack of knowledge among most accounting firms of what the CTA requires and how they should plan to meet those requirements for their own firms. Even after initial education is complete, it's important for everyone in the firm to stay up to date on the latest developments related to the CTA.
  • Proactively communicate with clients about the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) filing requirements. It's important to ensure that clients are aware of the CTA and its implications.  
  • Consider offering BOI reporting as a service if it fits with the firm's strategic goals and growth plans.
  • Review current processes and procedures, including anti-money laundering (AML) and know-your-customer (KYC) policies, to ensure that they are up-to-date and effective.   
  • Develop a process for helping clients gather the necessary information and handling beneficial ownership information in a confidential and secure manner.  
  • Conduct a client risk assessment to identify any potential risks associated with the CTA and BOI reporting.
  • Review current risk mitigation controls and procedures, and make changes/implement new risk mitigation controls and procedures as appropriate with the Corporate Transparency Act and BOI reporting in mind. 
  • Consider if your firm needs to file under the CTA BOI reporting rules. After all, roughly 80% of accounting firms will be subject to the BOI reporting rules.
Beneficial Ownership Information Reporting
What public accounting firms and professionals need to know about reporting under the Corporate Transparency Act.

What's next through the end of 2023? Additional FinCEN rules, and bills in Congress. 

FinCEN's work is not done. The agency has said it will be providing more guidance before reporting is set to begin because there are still many issues that need to be resolved. For example, FinCEN has yet to announce a proper format or mechanism for filing documents with the agency.   

FinCEN must also issue two additional rules.

  • The first rule will need to outline who will have access to the database where the BOI reporting information on business entities is stored and how they'll make sure the database is secure.  
  • The second rule must revise the customer due diligence rule, mainly affecting financial institutions.  

Finally, FinCen has not yet drafted the actual reporting forms and published them for public comment.   

In addition, there are two bills in Congress, H.R. and S. 2623, both titled the Protecting Small Business Information Act of 2023. Both of these bills would delay the January 1, 2024, BOI reporting start date to some undetermined future date to provide additional time for small businesses to learn about and better understand their new reporting requirements.  

These bills and the extension of the launch of the BOI reporting requirement is supported by the AICPA and other professional and industry groups. However, the likelihood of an extension remains uncertain, and businesses and accounting firms are wise to continue to prepare for a January 1, 2024, start date. 

Mark Friedlich
Vice President of US Affairs for Wolters Kluwer Tax & Accounting
Mark Friedlich, a CPA & tax lawyer, is the Vice President of US Affairs for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and has been a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a COO and Principal at PwC.


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