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Author: Cath Ariola

Best Practices for Educating Clients About BOI Reporting Obligations

Posted on by Cath Ariola

As the regulatory landscape continues to evolve, one area that has garnered significant attention is the Beneficial Ownership Information (BOI) reporting requirement under the Corporate Transparency Act (CTA). For CPAs, attorneys, and other professionals working with business clients, it’s essential to ensure that clients understand their BOI reporting obligations.

This not only helps clients stay compliant but also mitigates the risk of penalties and legal issues. Whether or not you plan to assist with BOI reporting, you should take it upon yourself to make sure that clients are aware of BOI reporting obligations. 

Understanding BOI Reporting Obligations

The BOI reporting requirement mandates that certain entities disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This is intended to enhance corporate transparency and combat illicit financial activities. 

However, the complexity of BOI regulations means that many clients may not fully understand their responsibilities, making it imperative for professionals who are aware of CTA reporting to provide clear guidance or refer clients to resources where they can receive help.

Best Practices for Educating Clients

  1. Start with the Basics

    Begin by explaining what BOI reporting is and why it matters. Clients need to understand that BOI reporting is not just a bureaucratic requirement but a critical component of national efforts to prevent money laundering and other financial crimes.

  2. Clarify Who Needs to Report

    Not all entities are required to submit BOI reports. Educate your clients on the specific criteria that determine whether they need to report (you may want to take a look at the 23 types of exempt entities in case you are able to point them in the right direction for an exemption they might meet).

  3. Explain the Consequences of Non-Compliance

    Emphasize the importance of timely and accurate reporting by outlining the penalties for non-compliance. This includes potential fines, legal action, and reputational damage. Clients are more likely to take their obligations seriously when they understand the risks of non-compliance. Most entities have until January 1, 2025, to file which is coming up quickly.

  4. Use Clear, Non-Technical Language

    Avoid legal jargon and technical terms that might confuse clients. Instead, use straightforward language and practical examples to explain BOI reporting requirements. This approach makes the information more accessible and easier to understand.

  5. Provide Resources and Tools

    Offer clients resources such as checklists, templates, and guides to help them navigate the reporting process. Refer clients to FinCEN’s BOI website where they can access compliance guides and read FAQs.

  6. Schedule Regular Updates

    The regulatory environment is dynamic, and BOI reporting requirements may change over time. Stay informed about any updates and proactively communicate these changes to your clients.

  7. Encourage Professional Assistance

    Finally, remind clients that they don’t have to navigate BOI reporting alone. Encourage them to seek professional advice when needed, whether from you, their CPA, attorney, or a compliance expert. This ensures that they have the support they need to meet their obligations accurately and on time.

Conclusion

There is expected to be 32.6 million BOI Reports filed by the end of 2024. As of August 2024, only about 2.7 million entities have filed. Educating clients about BOI reporting obligations is critical at a time like this. By following these best practices, CPAs, attorneys, and other professionals can help their clients understand and fulfill their reporting requirements, ultimately contributing to a more transparent and accountable financial system.

Tips for Ensuring CTA Compliance with FinCEN BOI Regulations

Posted on by Cath Ariola

The Financial Crimes Enforcement Network (FinCEN) has established rigorous Beneficial Ownership Information (BOI) regulations under the Corporate Transparency Act (CTA). Compliance with FinCEN BOI regulations is crucial for businesses to avoid penalties and maintain transparent operations.  

Here are some key tips to help ensure compliance with FinCEN BOI regulations: 

1. Understand the Scope of FinCEN BOI Regulations

The CTA requires certain entities to report their beneficial owners to FinCEN. It’s essential to know if your business falls under these requirements! Generally, the regulations apply to corporations, limited liability companies, and other similar entities created or registered in the U.S. This captures about 90% of all entities existing in 2024. 

2. Identify Beneficial Owners Accurately

A beneficial owner is an individual who directly or indirectly owns or controls 25% or more of the company or exercises substantial control over the company. Identifying these individuals accurately is critical, and typically involves: 

  • Determining ownership percentages 
  • Understanding the roles and control each owner has within the company 

3. Maintain Detailed Records

Keeping meticulous records of beneficial ownership and any changes in ownership is vital., including: 

  • Ownership percentages 
  • Control roles, responsibilities, and the individuals with them 
  • Ensuring details about beneficial owners stay up to date 
  • Tracking changes to business information (i.e. registering new DBAs, changing principal address, etc.) 

4. Stay Updated on Regulatory Changes

FinCEN has updated its guidance and FAQs on BOI reporting requirements in the last year. Keep a look out for these updates to ensure ongoing compliance and capturing new information. Subscribe to FinCEN updates and regularly review their website for new information. 

5. Use a Secure BOI Reporting Software 

Implementing BOI reporting software that complies with FinCEN BOI regulations can simplify the reporting process. Look for software that offers: 

  • Secure data handling and storage 
  • Automated reporting features 
  • Regular updates to align with changing regulations 

6. Train Your Team

Identify who on your team will be keeping track of BOI in the future. Ensure they are well-trained in the requirements and procedures for BOI reporting. Comprehensive training sessions, including the review of FinCEN’s guidance can help maintain awareness and accuracy in reporting. 

7. Consult with Compliance Experts

Engaging with compliance professionals or legal advisors who specialize in FinCEN regulations can provide invaluable insights, especially for those entities entangled in complex ownership structures. They can help you navigate complex situations and ensure your reporting is accurate and every aspect has been considered. 

8. Report Changes Promptly

Any changes in beneficial ownership information must be reported to FinCEN within 30 days of the change occurring. Prompt reporting helps maintain compliance and avoid potential penalties. 

BOI Reporting for Series LLCs

Posted on by Cath Ariola

The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, requires certain entities to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). While traditional LLCs have clearer reporting obligations, BOI reporting for series LLCs presents a unique challenge due to their complex structure and lack of guidance from FinCEN. The end of the year is nearing, along with the due date for millions of entities, so professionals may not have the time to wait for further guidance.

Series LLCs Explained

A Series LLC is a special form of LLC that allows for the creation of separate “series” or divisions within a single LLC. Each series can have its own assets, liabilities, and business operations. Importantly, series within an LLC are treated as distinct entities for liability purposes, but how they are recognized for reporting or legal purposes varies by jurisdiction.

In Texas, for instance, a series LLC is either a protected series (formed before June 1, 2022) or registered series (formed on or after June 1, 2022). Protected series do not have specific filing requirements when created, while registered series require additional filings with the Texas Secretary of State, including a certificate of registered series and documents when winding up or terminating. Source: https://www.sos.state.tx.us/corp/formationfaqs.shtml#LLC1

Corporate Transparency Act Requirements

The CTA applies to “reporting companies,” which are entities created by filing documents with a state secretary or similar authority under state law. Series LLCs raise the question of whether each individual series within the LLC must file as a separate reporting company or whether the parent LLC alone is responsible for submitting a BOI report.

For an entity to be classified as a reporting company under the CTA, it is critical to assess whether the individual series were created by the filing of a document with the relevant government authority.

BOI Reporting for Series LLCs in Texas: A Closer Look

Consider a series LLCs formed in Texas; the parent LLC is formed through the filing of Articles of Organization with the Secretary of State. Importantly, this filing is what establishes both the parent and any potential series under the parent’s structure. If the series LLC has filed for assumed names (doing business as or DBA) for its individual series, those filings do not arguably result in the legal formation of the series itself but merely indicate the use of a trade name.

In the case of assumed names, the mere filing of a DBA for a series may not meet the definition of a reporting company since it may not be considered “created” because of the filing. In fact, the Texas Secretary of State FAQs says, “The secretary of state does not have a specific form to be used to form a series LLC.” (Series LLCs; Question 2)

However, the distinction between protected series and registered series is where reporting obligations should be considered:

  1. Protected Series (Formed before June 1, 2022): Protected series in Texas are not required to submit any separate filings to the Secretary of State when they are created under the umbrella of the parent LLC. Since no specific filing is required for the formation of these series, it could be argued that the parent LLC alone is the reporting entity under the CTA since it was the only one that filed a document that resulted information. Professionals handling protected series may choose to report under the parent LLC and list the individual series as DBAs under the parent LLC’s beneficial ownership information report.
  2. Registered Series (Formed on or after June 1, 2022): Registered series have additional filing requirements, including a certificate of registered series filed with the Texas Secretary of State. These series are formally registered and have distinct filing obligations that could arguably make them separate reporting companies under the CTA. However, do these filings result in the formation of the series? While FinCEN has not yet provided explicit guidance on this matter, entities managing registered series may consider filing separate BOI reports for each separate series as they are created by filing the certificate of registered series.

The Lack of FinCEN Guidance

As of now, FinCEN has not provided specific guidance on whether each series within a series LLC must file separate BOI reports or if the parent LLC can file on behalf of all series. Given the complexity of this issue, and the significant variation between different states that have series LLC statutes, it is very likely that guidance may not be released on this topic for some time, if at all. This lack of guidance leaves professionals handling series LLCs with some uncertainty, and with a looming December 31, 2024 deadline for entities created prior to January 1, 2024.

While the logical approach may vary based on the specific characteristics of each series (jurisdictional specifics, type of entity, method of formation, etc.), compliance will ultimately depend on differing regulatory interpretation and jurisdictional nuances, and ultimately is subject to significant interpretative uncertainty.

Conclusion

Until more clarity is provided, it’s important for legal and other professionals to carefully evaluate the filing status of each series within a Series LLC, consider whether the series was created through formal filing, and stay informed on evolving FinCEN guidance. Additionally, state-specific nuances, such as Texas’s rules for assumed names and the distinctions between protected and registered series, must be taken into account to ensure proper reporting under the CTA. It may be a good idea to incorporate language into CTA engagement letters to be certain that clients are aware that reporting requirements may change based on FinCEN guidance.

Disclaimer: This blog article is intended for informational purposes only and does not constitute legal advice.  For advice on specific legal issues, please consult with a qualified attorney.

NY Passed State BOI Filing – Will Other States Follow Suit?

Posted on by Cath Ariola

The regulatory landscape for business compliance is continually evolving, and the recent move by New York to implement state-level Beneficial Ownership Information (BOI) filing requirements marks a significant shift. This new mandate not only highlights the growing importance of transparency in business operations but also raises a critical question: will others follow New York’s lead?

Understanding the implications of this development and preparing for potential changes is essential for businesses across the United States. 

The Significance of New York’s State BOI Filing Requirement

New York’s decision to require state-level BOI reporting reflects a broader trend towards increased transparency and accountability in business practices. This act is aligned with the goals of the Corporate Transparency Act (CTA) and the Financial Crimes Enforcement Network (FinCEN) at the federal level. Effective January 1, 2026, any LLCs operating in the state must now comply with both federal and state requirements, which adds complexity to their compliance responsibilities.

The New York LLC Transparency Act (NYLTA) requires any LLCs formed or registered to do business in the state to disclose their beneficial owners, aligning state regulations with federal transparency efforts under the CTA. This move is a signal that New York is leading the charge in pushing for accountability in business practices.

Will Other States Follow New York’s Lead?

Given the growing emphasis on financial transparency, other states may consider adopting similar state BOI filing requirements. For example, California passed a bill (although not fully into the law yet) that may require corporate entities formed in California to report their beneficial owners along with their annual filings. Several factors could drive this trend:

  1. Pressure for Uniform Standards:
    • As more states adopt their own BOI reporting requirements, there may be a push for uniform standards to ensure consistency and avoid confusion for businesses operating in multiple states.
    • Increased collaboration between federal and state authorities could lead to more streamlined and harmonized compliance frameworks.
  2. Public and Regulatory Demand:
    • There is a growing public and international demand for greater transparency in U.S. business operations, particularly in light of high-profile financial scandals and investigations.
    • Depending on the result of the CTA database, state and federal regulatory bodies may realize the importance of comprehensive BOI reporting to combat financial crimes.

New York’s state BOI filing requirement marks a significant development in the landscape of business compliance, not just at the federal level, but at the state level. Businesses and professionals must be prepared to navigate any new requirements that may vary across jurisdictions.

The Advantages of Having Your CPA Help With BOI Reporting

Posted on by Cath Ariola

The Corporate Transparency Act (CTA) has introduced new requirements for businesses to report their Beneficial Ownership Information (BOI). Navigating these regulations can be confusing, especially during the initial reporting process. Enlisting the help of a CPA or attorney can provide significant advantages, ensuring compliance and peace of mind. 

Dive to discover the advantages of having your CPA help with BOI reporting:

The Benefits of Having Your CPA Help With BOI Reporting:

In-Depth Understanding:

CPAs and attorneys understand the intricacies involved in BOI reporting. Their expertise ensures that all CTA requirements are thoroughly considered and correctly applied. They are also well-versed in the latest regulatory updates and are used to changes, which is important when staying compliant with evolving requirements.

Accurate Reporting:

Professional assistance minimizes the risk of errors in your BOI reporting. CPAs and attorneys can meticulously review and analyze entity documentation, ensuring accuracy and completeness. Accurate reporting is essential to avoiding penalties and legal issues, so it’s important that your business meets all compliance standards, safeguarding your operations.

Streamlined Procedures:

Professionals can help organize and manage the necessary documentation, making the reporting process more efficient. Along with this organization comes assurance that all required information is submitted on time, avoiding last-minute rushes and potential oversights.

Proactive Planning:

Advisors can help you develop a plan for ongoing compliance, ensuring that your business is prepared for reporting requirements for updated information. By delegating some of the BOI upkeep to a CPA or attorney, you can free up internal resources to focus on core business activities.

Tailored Solutions:

Experts in CTA compliance can provide personalized advice and strategies tailored to your specific business needs and circumstances. With this focused support, you can receive dedicated attention and assistance throughout the BOI reporting process. Now is a great time to contact a professional before the year-end rush and potentially higher billing rates.

Ongoing Assistance:

Beyond the initial BOI reporting, professionals can offer ongoing support and guidance, helping you navigate future compliance challenges and reminding you of when updated BOI Reports will need to be filed. Maybe they will help you catch a change that you didn’t know needed to be reported within 30 days!

Don’t navigate the complexities of BOI reporting alone. Consider partnering with a professional to ensure your business is compliant, secure, and prepared for the future.

Should Lawyers Obtain FinCEN IDs? Explore Two Compelling Reasons!

Posted on by Cath Ariola

In today’s increasingly complex regulatory environment, lawyers and CPAs must navigate a myriad of compliance requirements. One of the key tools at their disposal under the new reporting requirement for new entities – Corporate Transparency Act (CTA) – is the FinCEN Identifier (FinCEN ID). Should lawyers obtain FinCEN IDs?

The FinCEN ID is a unique identifier issued by the Financial Crimes Enforcement Network (FinCEN) for individuals to report on Beneficial Ownership Information Reports (BOIRs) in place of certain required pieces of information. While lawyers will generally not find themselves being reported as beneficial owners on these reports, they may end up being reported as company applicants. 

While obtaining a FinCEN ID might seem like just another bureaucratic step, it actually offers significant advantages that can enhance a lawyer’s practice, protect their privacy, and ensure compliance with critical regulations. 

Enhanced Privacy: Safeguarding Your Personal Information

Privacy is a major concern for legal professionals who routinely handle sensitive information for their clients. Under the CTA, lawyers involved in company formations must provide their personal information on each BOI report where they are involved in forming the company. Sending their information to each client that they service not only increases their exposure to information leaks but also can be a hassle.

A FinCEN ID changes this dynamic. By substituting the lawyer’s personal information with a unique identifier, the FinCEN ID ensures that sensitive details are being directly submitted to the government, not middle-manned through the new entity BOI reports. 

This means that while the necessary regulatory information is still provided to FinCEN, the lawyer’s privacy is better protected. For attorneys who value discretion and security, this is a significant benefit that can offer peace of mind in an era where data breaches and identity theft are on the rise.

Administrative Efficiency: Streamlining the Reporting Process

Another compelling reason for lawyers to obtain a FinCEN ID is the increase in administrative efficiency it offers. The application process for a FinCEN ID is relatively quick, taking only 5-8 minutes to complete. Once obtained, this ID can be shared instead of repeatedly sending the five pieces of required information every time a BOI report is filed.

This streamlined process saves valuable time that can be redirected toward more critical tasks, such as helping clients with the CTA or other compliance-related matters. For lawyers who are not directly engaging in this reporting requirement but still need to support clients, having a FinCEN ID reduces the amount of time spent on administrative tasks, thereby improving overall productivity.

Should Lawyers Obtain FinCEN IDs? A Valuable Tool for Today’s Legal Professionals

With an estimated 5.6 million new entities to be formed each year that will need to comply with the CTA, means that obtaining a FinCEN ID will be increasingly important for lawyers involved in corporate formation going forward. 

For legal professionals who want to stay ahead of the curve and provide the best possible service to their clients, obtaining a FinCEN ID is not just a recommendation—it’s a strategic necessity.