Is Help With BOI Reporting Really Needed?
By now, most readers have likely heard of the Corporate Transparency Act (CTA), which became effective in January.
This legislation requires businesses to report their beneficial ownership information (BOI) to the government. However, there are a few critical considerations to keep in mind to ensure compliance and avoid penalties.
In March 2024, a district court ruling declared the CTA unconstitutional. This judgement affected only a minority of entities – those associated with the plaintiff of the case, the National Small Business Association (NSBA).
With approximately 65,000 members impacted, this is a small fraction compared to the estimated 32.6 million entities that still need to report by the end of 2024.
For the vast majority of businesses, CTA compliance remains a pressing issue, highlighting the necessity for professional help with BOI reporting.
Complexity and Confusion in Regulations
The CTA’s regulations are intricate and may be perceived as vague, leading to potential under-reporting or over-reporting by business owners. The definitions within the regulations are not always clear-cut.
For instance, identifying individuals with “substantial control” over an entity, such as determining who qualifies as a senior officer involves more than just looking at titles. It’s about understanding the roles and responsibilities at a company.
A person with the title “Manager” might fall under the definition of a senior officer if their role and responsibilities align with the criteria set forth in the CTA.
A few other examples that call for the input of a professional include determining if an entity qualifies for an exemption, identifying the company applicants that need to be reported (if applicable), and considering the need for beneficial owners to obtain FinCEN Identifiers.
Determining 25% ownership rules can also get complex with tiered entity structures. Such complexities make it easy for business owners to misinterpret the requirements, resulting in either incomplete or excessive reporting. This is where professionals can step in to provide clarity and ensure accurate reporting.
Professionals are well-versed in interpreting these definitions and can guide business owners through the nuances, ensuring compliance without overburdening them.
Ongoing Compliance and Updates
The initial filing is just the beginning of the compliance journey. Business owners must also be aware of the requirement to file updates within 30 days of any change in previously filed information.
This means that any changes in ownership, substantial control, or exempt status require another report be filed. If a previously reported company becomes exempt, such as by becoming inactive, it must submit a “newly exempt entity” BOI Report.
The ongoing nature of these compliance requirements demands a level of vigilance and understanding that many business owners may not possess.
Professionals can help monitor these changes and ensure timely updates, avoiding potential penalties. They can use software to organize information and report updates efficiently.
They can also educate business owners on what changes require updates to be filed. This proactive approach not only ensures compliance but also reduces the risk of last-minute scrambles to meet reporting deadlines.
Lack of Awareness and Proactive Communication
Despite the significance of the CTA, many business owners are still unaware of its existence and the obligations it imposes. This lack of awareness can lead to non-compliance, which carries significant penalties.
Professionals play a non-negotiable role in bridging this knowledge gap. They can get a jump on communicating with their clients, ensuring they are aware of the CTA requirements.
Strategic Approaches to Client Support
Professionals have several options for assisting clients with CTA compliance, depending on the level of engagement and support the client needs:
- A comprehensive, white glove approach involves handling the entire CTA process for the client, from the initial filing to managing updates. This engagement is ideal for clients who prefer a hands-off approach and want assurance that their compliance needs are fully managed.
- Professionals can guide clients through the initial filing, after which the clients will manage their own compliance going forward. This approach offers a balance between professional guidance and client independence.
- For those who prefer not to engage directly with CTA compliance, educating clients about their obligations and referring them to trusted resources for compliance can be an effective strategy. Professionals can even build a network of trusted compliance specialists to whom they can refer clients.
How Will You Help With BOI Reporting?
The CTA compliance landscape is complex, and the need for professional assistance is clear. Business owners face a myriad of challenges, from understanding vague definitions to managing ongoing updates.
Whether offering assistance through full-service management, advisory roles, or educational support, professionals play a critical role in helping business owners achieve and maintain compliance. As the deadline approaches and ongoing updates are required, now is the time to determine how you will assist your clients in achieving and maintaining compliance.
This proactive approach not only ensures compliance but also fosters trust and long-term relationships with clients, positioning you as a valuable partner in their business success.
While this service model demands significant resources, it also opens up a new revenue stream for firms willing to invest in it. The primary challenge here is not the initial filing but the ongoing management of updates, especially given the tight 30-day deadline for reporting any changes. Firms offering this service must establish robust mechanisms for smooth communication and operation, ensuring changes are filed promptly to avoid penalties. Despite the resource intensity, many clients expect this level of service, making it a valuable offering for firms that can deliver.
The court’s ruling only affects NSBA’s 65,000 members and their entities. All other entities not affiliated with the NSBA are required to adhere to the standard CTA reporting deadlines. It is very important for professionals to recognize that this ruling has affected a small number of those that fall under CTA provisions; however, the unconstitutional ruling doesn’t change CTA reporting for most and does not apply broadly to all entities.