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Corporate Transparency Act Reporting Deadline Looms for Law Firms and Their Corporate Clients by Dan Hughes, CPA/CFF, CGMA, CVA

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Posted on November 05, 2024 by Daniel Hughes

With the enactment of the Corporate Transparency Act (CTA), applicable businesses, including law firms, must come into compliance with the law’s disclosure requirements by Jan. 1, 2025.

The CTA requires domestic and foreign corporations, LLCs and partnerships doing business in the U.S. as of Jan. 1, 2024, to disclose for the first time the identities of the individuals behind those entities before Jan. 1, 2025. Failure to file a detailed beneficial ownership information report (BOIR) with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) can result in civil penalties of $591 per day for the entity and its owners as well as criminal penalties that can include a $10,000 fine, up to two years in prison, or both.

The justification for the CTA and the release of personally identifiable ownership information is simple: combat the use of anonymous shell entities and opaque ownership structures commonly used to facilitate money laundering and other financial crimes. However, the application of the law and the effort required to complete a BOIR can be a technical challenge.

For example, applicable entities must determine whether they qualify for any of the 23 exemptions from the reporting requirements. When they do not, they must understand the law’s definition of beneficial owners to include anyone who 1) “exercises substantial control” over a reporting company or 2) owns 25 percent or more of the reporting company. These individuals may include senior officers, persons with the power to appoint or remove senior officers, or persons who can direct or substantially influence important company decisions, such as the disposal of company assets, reorganizations or dissolutions, compensation of senior officers and spending on major expenditures. Beneficial owners may also include the settlors, beneficiaries and trustees of companies held in trust.

The details reporting entities must submit to FinCEN in a BOIR include its legal name and any of its d/b/a names, its employer identification number (EIN), and its physical business address and jurisdiction. They must also report their beneficial owners’ legal names, dates of birth, residential addresses, passport numbers and photographic copies of their state-issued identification (i.e., driver’s license).

Given the expansive reach of the CTA, both in terms of the number of firms required to report and the sensitivity of the information they must disclose, it is imperative that applicable entities, including law firms and their clients, reach out to their accountants and advisors as soon as possible to meet the end of year filing requirement.

About the Author: Daniel S Hughes, CPA/CFF, CGMA, CVA, is a director of Forensic and Advisory Services with Berkowitz Pollack Brant, where he works with attorneys and their clients on a broad range of business litigation issues, including bankruptcy, economic damages assessments, lost profits and business interruption insurance claims. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.