The new beneficial ownership reporting requirements under the Corporate Transparency Act (“CTA”) took effect on January 1, 2024, and months later, the small business community remains woefully unprepared for compliance with this complex reporting regime. CAMICO continues to receive numerous inquiries from policyholders regarding implications of assisting clients with the new beneficial ownership information reporting guidelines under the CTA, as compliance challenges pose potential risks to accounting professionals.
As you may know, there has been much discussion and debate within the accounting community about whether CPAs are able to provide guidance and advice to their clients regarding whether an exemption applies or to ascertain whether legal relationships constitute beneficial ownership. The overarching concern is that CPAs and non-attorney tax professionals providing assistance to clients in this arena could be deemed engaging in the unauthorized practice of law (“UPL”). As each state has its own definitions of what services are considered UPL, this continues to present some risk to the accounting profession.
As of the date of this article, few states have commented on the issue as to whether CPAs providing advice to clients regarding the CTA would, or would not, be viewed as UPL. 1 On May 8, 2024, Maryland’s Attorney General issued an Opinion (“MD Opinion”) to address the question of whether assistance by a CPA with the BOI reporting requirement of the CTA would constitute the unauthorized practice of law in Maryland.2 In an excerpt from the MD Opinion, they concluded the following:
“In our opinion, the Maryland courts would most likely hold that a CPA may, without violating the prohibition on unauthorized practice of law, provide clients general information about the Transparency Act and the BOIR requirement without tailoring the information to any client’s individual situation, or fill out and file a BOIR form using a list of beneficial owners submitted by the client. Though the question is closer, a CPA likely also may help a client to determine whether it is a “reporting company,” or to identify its “beneficial owners” within the meaning of the Transparency Act, by walking the client through FinCEN’s instructions, by defining terms that are familiar to nonlawyers and/or CPAs, or by answering questions for the client where the question and answer do not call for legal knowledge or skills. However, a CPA generally should not answer a BOIR-related question for a client where there is uncertainty as to the answer and resolving that uncertainty would require legal knowledge, skill, and judgment.”
On July 9, 2024, the New Jersey Supreme Court Committee on the Unauthorized Practice of Law (“NJ Committee”) issued an Opinion Letter on the unauthorized practice of law concern specific to NJ CPAs filing “beneficial owner information” reports (“BOI Reports”) under the Corporate Transparency Act. An excerpt from the NJ Opinion Letter stated:
“With regard to beneficial owner information reports under the Corporate Transparency Act, the Committee finds that the public needs protection, given the complexity of some matters and the significant civil and criminal penalties for noncompliance with the Act. Complex filings require a lawyer’s judgment, training, and expertise — the analysis may be tricky and the risk of penalties, if the analysis is faulty, is greater. While the public needs protection in complex matters, however, most filings will be straightforward. For example, all matters where there is a single owner of a limited liability company will be simple — that single owner is the beneficial owner of the entity for purposes of the Act. In such cases, one does not need to be a lawyer to determine the necessary information to include in a beneficial owner information report.”
The NJ Committee further noted that given that most filings are likely to be straightforward cases, they found that a licensed CPA can engage in providing services for such straightforward cases provided the CPA notifies the client that it may be advisable to consult with a lawyer. The NJ Opinion Letter made it clear that the Committee relies on the professionalism of CPAs to ensure that such licensees will recognize when a filing is more complex, and it is in the client’s interests for a lawyer to be retained in the matter.3
And most recently, the Iowa Supreme Court filed an Order on September 9, 2024, which provides a different perspective from the Maryland and New Jersey opinions. The Iowa Order indicates that it is not the unauthorized practice of law for non-attorneys to assist clients to prepare and/or file BOI reports, and to determine whether to file BOI reports. See below excerpt from the Iowa Order:4
Chapter 37. The Commission on the Unauthorized Practice of Law (Commission) recommended a clarification to rule 37.1(2) on who may be designated administrator of the Commission.
The Iowa State Bar Association’s Business Law Section and other stakeholders recommended a rule change to allow nonattorneys to assist clients to file Corporate Transparency Act Beneficial Ownership Information (BOI) reports with the U.S. Department of the Treasury. New rule 37.6 clarifies that it is not the unauthorized practice of law for nonattorneys to assist clients in preparing, filing, or determining whether to file, BOI reports.
It is important to note that the Iowa Order is specific to Iowa and, as such, only firms licensed in that state who perform CTA-related services for Iowa clients should consider the order to be an authoritative position. Although the Maryland and New Jersey opinions are specific to those respective states as well, absent any other state-specific rulings/opinions on the UPL concern in states that a firm is licensed in, and/or does business in, that may further narrow the scope and limits of CPAs filing BOI reports, CAMICO believes it may be prudent for firms to reference the more conservative guidance set forth in the Maryland and New Jersey opinions as a guide when evaluating what, if any, CTA-related services a CPA firm may wish to provide to their clients.
There have also been legal challenges regarding the constitutionality of the CTA. On March 1, 2024, a decision was filed by the United States District Court for the Northern District of Alabama (NSBA v. Yellen) which declared the Corporate Transparency Act to be unconstitutional for the named Plaintiffs, the National Small Business Association (“NSBA”) and a small-business owner who is a member of the NSBA.5[1] Although this court ruling only applies to the named Plaintiffs, the Court’s declaratory judgment that the CTA is unconstitutional has created added confusion within the small business community. The U.S. Department of Justice (DOJ) has filed an appeal, and many organizations have urged FinCEN to suspend all enforcement actions until one year after the conclusion of all court cases related to NSBA v. Yellen and take no retroactive enforcement actions for non-compliance during this time. FinCEN, however, has made it clear that non-enforcement applies only to the plaintiffs in the NSBA v. Yellen case and all other entities deemed reporting companies under the guidance as promulgated must still comply with the CTA and are required to submit beneficial ownership and company applicant information to FinCEN. Note that FinCEN has clarified that this ruling applies only to NSBA members as of March 1, 2024, so an entity seeking to join the NSBA in hopes of shielding itself from CTA enforcement may not succeed.
From a risk management best practices perspective, CAMICO strongly encourages firms to tread carefully and stay current with the UPL-related guidance in the state(s) in which you are licensed as well as the state(s) in which your clients reside. CAMICO’s professional liability policy generally will cover claims related to assisting clients with CTA-related services subject to applicable policy terms, conditions, and exclusions, provided that such services do not clearly constitute the unauthorized practice of law at the time CTA-related services are rendered. Insurance companies are under strict regulatory guidelines that typically preclude carriers like CAMICO and others from insuring parties for criminal acts. As such, professional liability policies, including those for accountants, have exclusions for any claim based on, or arising from or related to, criminal acts or other acts deemed to be fraudulent in nature. Consequently, as UPL violations in some states may be treated as criminal matters, any such claims could trigger this exclusion.
It is important to assess your firm’s willingness, knowledge, expertise, and risk tolerance to take on CTA compliance work. The scope and limits of any CTA-related services you deem appropriate to perform should be well documented and consistent with the client’s understanding and expectations. When in doubt, advise clients to seek guidance from qualified legal counsel.
Risk Management Best Practices
- Familiarize yourself with the Corporate Transparency Act and the beneficial ownership reporting requirements and stay current with any further guidance promulgated by FinCEN.
For details on specific CTA provisions, refer to the Beneficial Ownership Information Reporting Rule, available at https://www.fincen.gov/boi.
For additional information regarding the CTA’s beneficial ownership reporting requirements, refer to FinCEN’s Frequently Asked Questions document at https://www.fincen.gov/boi-faqs.
- DOCUMENT, DOCUMENT, DOCUMENT…
- Inform and advise your clients in writing regarding the new beneficial ownership reporting requirements under the CTA and your recommendation that they seek legal guidance. CAMICO offers a client notification template for this purpose which is available on CAMICO’s Members-Only Site.
- Modify your traditional tax and financial statement engagement letters to include language that specifically disclaims the firm’s involvement in assisting clients with CTA compliance under the terms of that agreement, as any such CTA-related services that a firm deems appropriate to perform should be covered under a separate stand-alone CTA engagement letter. See CAMICO’s suggested disclaimer language below:
Starting in 2024, the Corporate Transparency Act (“CTA”) mandates certain entities (primarily small and medium-size businesses) created in or registered to do business in the United States report information about their beneficial owners — the individuals who ultimately own or control a company — to the Financial Crimes Enforcement Network (“FinCEN”). Management is responsible for <Client>’s compliance with the CTA, if applicable to its business, and for ensuring that any required reporting of beneficial ownership information (including the initial filing and any required ongoing updates and/or corrected reports that may be necessary) is timely filed with FinCEN as required by the CTA. Our firm’s services under the terms of this agreement do NOT include any advising, consulting, or submission of any required reporting related to your entity’s compliance with the CTA.
<If you need assistance with any required CTA reporting and/or have any questions regarding <Client>’s compliance with the CTA, including but not limited to whether an exemption may apply to your organization or to ascertain whether relationships constitute beneficial ownership under CTA rules, we strongly encourage you to consult with qualified legal counsel experienced in this area.>
OR
<If you need assistance with any required CTA reporting and/or have any questions regarding <Client>’s compliance with the CTA, including but not limited to whether an exemption may apply to your organization or to ascertain whether relationships constitute beneficial ownership under CTA rules, please contact us. Any CTA-related services we agree to perform will be covered under a separate engagement letter.>
- Use stand-alone engagement letters if the firm is rendering CTA-related services to clients that specify the limited nature of the services the firm is providing (e.g., filing of the initial BOI report, filing of a corrected/updated BOI report) and contain appropriate disclaimer language for such limited services. CAMICO also recommends having the client provide written representations acknowledging that they are responsible for the accuracy and completeness of the information they provide for purposes of preparing the BOI report, and they also acknowledge their understanding that you are NOT performing any legal services as part of this limited service and that they have been advised by the firm to seek legal counsel.CAMICO has developed engagement letter templates and sample client representation letters for this purpose and CAMICO policyholders can access these templates on CAMICO’s Members-Only Site’s Engagement Letter Resource Center.
- Prepare your own firm for compliance if you are deemed to be a reporting company under currently promulgated CTA guidance.
CAMICO policyholders with questions should contact the Loss Prevention department by email at lp@camico.com or call 1.800.652.1772 and ask to speak with a Loss Prevention Specialist. Additional risk management resources are available on CAMICO’s Members-Only Site (https://www.camico.com).
1 On August 2, 2024, the Virginia State Bar’s Committee on Legal Ethics declined the VSCPA’s request to issue an opinion on the issue of CPAs providing BOI services. Refer to: Where BOI reporting stands now | Virginia Society of Certified Public Accountants (vscpa.com).
2 Refer to the full Opinion of Maryland’s Attorney General at: 109OAG32.pdf (marylandattorneygeneral.gov).
3 Refer to the full Opinion Letter of the New Jersey Supreme Court Committee at: https://www.njcpa.org/docs/default-source/stay-informed/advocacy/01-2024-cpa-inquiry-response.pdf.
4 Refer to the following link to access the Iowa Supreme Court Order: embedDocument (iowacourts.gov).
5 Refer to the following link to access the court’s filed document: https://s-corp.org/wp-content/uploads/2024/03/051.-Memorandum-Opinion.pdf.
