FinCEN claims filling out the new Beneficial Ownership Information (BOI) reporting firm “only takes 10-15 minutes.” However, those minutes could translate into years of liability for tax practitioners. As the January 1, 2025, deadline looms for existing businesses to submit their initial BOI reports, practitioners grapple with a new layer of complexity. They must balance client service with increasing professional risks and compliance responsibilities.
In a recent Federal Tax Updates podcast, hosts Roger Harris, EA and President at Padgett, and Annie Schwab, CPA and Franchisee Operations Manager at Padgett, discussed these complexities. Once a tax professional files as a “company applicant,” that designation—and its liabilities—persist indefinitely. Beneficial ownership changes must be reported within 30 days, which creates an ongoing compliance burden. Perhaps most importantly, practitioners must tread carefully to avoid overstepping into unauthorized legal practice.
The stakes are high, with 33 million businesses potentially subject to these new requirements and only about 5 million reports filed to date. Roger and Annie recommend that tax practitioners assess their ability to offer this service, update engagement letters, and fine-tune client communications to safeguard their practices and maintain client trust.
Understanding the Role of the Company Applicant
Tax practitioners routinely assist clients with business entity formation. However, the new BOI reporting requirements come with some new risks. Annie explains that two types of company applicants exist: those who directly file formation documents and those “primarily responsible” for directing the filing.
This designation and the associated liabilities are permanent once a practitioner is identified as a company applicant. “You could no longer have any relationship with that client and still be listed as the company applicant,” Roger warns. This permanence intensifies the risk for practitioners handling entity formations.
It also raises questions about the viability of offering BOI report filing services. Though serving as an accountant or advisor does not automatically classify one as a company applicant, direct involvement in entity formation might. Roger stresses the importance of evaluating the risk-benefit ratio: “Practitioners need to ask themselves if the potential liability is worth the fee for helping clients set up entities.”
Rather than ceasing these services entirely, practitioners can mitigate risk by implementing appropriate safeguards:
- Reviewing their professional liability coverage
- Adjusting fees to reflect long-term risks
- Establishing protocols to clarify their responsibilities as company applicants.
Adapting to the 30-Day Compliance Window
FinCEN describes beneficial ownership reporting as a simple form that takes minutes to complete. But, as Roger notes, “That’s true only if you have all the information ready… The risk comes after that.” The individual completing the BOI report must submit extensive information about the business and its beneficial owners, including names, addresses, and identification details. However, the real challenge lies in meeting ongoing compliance demands.
When any change occurs—such as new ownership structures, CEO appointments, address updates, or identification document changes—practitioners have only 30 days to file updates. This tight window means practitioners offering BOI reporting services need strong client communication and tracking systems to stay compliant. Annie stresses the importance of rapid reporting: “If a change happens, even as simple as a new driver’s license, you must update that report within 30 days.”
Practitioners should develop procedures to ensure that clients report changes promptly. This might include implementing proactive monitoring systems or updating client engagement protocols. With the 30-day timeline in mind, practitioners must ensure clients understand the importance of timely updates to avoid potential penalties.
Avoiding Unauthorized Legal Practice
Another challenge in BOI reporting is the fine line between form assistance and unauthorized legal practice. While FinCEN allows practitioners to assist with BOI forms, the limited guidance offered by FinCEN leaves room for interpretation, which puts practitioners at risk.
“When it comes to interpreting Congress’s intent on certain details, that’s what attorneys are trained to do—not CPAs or enrolled agents,” Roger emphasizes. This gray area is particularly problematic because the recently updated FAQs fail to address specific scenarios, such as clients requiring guidance on complex ownership structures or beneficial owner qualifications.
Annie and Roger recommend a cautious approach to managing this risk: refer clients to attorneys whenever legal interpretation is needed. “We’re advising practitioners to seek attorney referrals for clients if interpretation is required,” says Roger. Unauthorized legal practice carries serious consequences, including denial of professional liability coverage, so practitioners should clearly define the scope of their services, establish referral relationships with attorneys, and maintain firm boundaries when clients request interpretations.
Action Steps for Practitioners: Preparing for January 2025
With the January 2025 deadline approaching, practitioners should help make their clients aware of the BOI reporting requirements, even if they don’t plan to offer the service.
However, if you do offer BOI reporting services, here are some tips for aligning your process with the new requirements:
- Review engagement letters. Ensure your client engagement letters specify the scope of services and exclude legal interpretations.
- Update fee structures. Adjust fees for entity formation services to account for the ongoing compliance obligations and potential liabilities.
- Establish communication protocols. Develop protocols to remind clients about reporting obligations and update processes for timely communication.
- Build an attorney referral network. Build relationships with attorneys to streamline referrals for required legal interpretations.
- Implement monitoring systems. Use systems that help track reporting deadlines and alert clients about compliance requirements.
Listen to the entire Federal Tax Updates podcast for more practical guidance on implementing these measures. Practitioners who proactively prepare will protect themselves, their clients, and their businesses.