Posts Tagged ‘BOI’

Corporate Transparency Act Ruled Unconstitutional; Appeal Certain

Sunday, March 3rd, 2024

On Friday, an Alabama federal judge ruled that the Corporate Transparency Act (CTA)–the law that authorized Beneficial Ownership Information (BOI) reporting–is unconstitutional.  As of today, this decision impacts one business in northern Alabama, but given an appeal is a certainty this could impact the BOI reporting regime.

Judge Liles Burke ruled that the CTA fell afoul of Congress’ powers.  “The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers. This conclusion makes it unnecessary to decide whether the CTA violates the First, Fourth, and Fifth Amendments.”  He opened the decision noting,

The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.

As of today, only the one company (and possibly the Northern District of Alabama) are impacted by this decision.  However, it’s a certainty that the decision will be appealed to the 11th Circuit Court of Appeals.  If that court upholds this ruling, BOI reporting will likely be dead.

To date, we’ve advised most of our clients to hold off on BOI reporting (unless they formed entities this year)–not because of possible constitutional issues; rather, we’re still waiting on guidance from FinCEN on community property issues related to BOI reporting.  Entities in existence as of 2024 have until January 1, 2025 to report.  Friday’s ruling adds another reason to delay BOI reporting.

The Upcoming Beneficial Ownership Information Disaster

Wednesday, November 29th, 2023

Is the light on the horizon the end of the long tunnel you’re transiting or the oncoming train?  Unfortunately, I see an oncoming train on the horizon in the new mandatory Beneficial Ownership Information reporting.  If you’re a business owner and don’t know what I’m talking about, read on.

Congress passed a law in 2021 called the Corporate Transparency Act (CTA) requiring most corporations, LLC, LLPs, or any other entity created by the filing of a document with a secretary of state or similar office of any state, district, or Indian tribe to report Beneficial Ownership Information (BOI).  Let’s assume you have an LLC for your rental property–let’s call it Steve’s Rental LLC–properly formed in Nevada.  Steve is the sole owner of this; he is subject to BOI reporting.  Steve must report his legal name, identification number (social security number), address, and include an image of an identifying document (e.g. driver’s license).  Initial reports for entities formed in 2023 or earlier is due by the end of 2024.  FINCEN announced this morning that reports for entities formed in 2024 are due 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports.  The reports must be submitted electronically through FINCEN.  I’d love to show you a draft of that report, but I can’t; nothing has been released.  Generally, a beneficial owner is one who owns 25% or more of the entity.

What if information changes? You have 30 days to file an updated report.  What if you have 20 LLCs, one for each rental you own? You have to file separate reports for each LLC.  There is an FAQ available, and FINCEN has a small entity compliance guide.

Why do I see problems on the horizon? First, many (most?) entity owners are unaware of this new requirement.  Second, accountants might not be able to assist.  While FINCEN said that reporting companies (filers of the BOI reports) can consult with professional service providers such as attorneys or accountants, some state bar associations are stating that filing these reports is the practice of law; thus, it would be unlicensed practice of law (UPL) for me to assist a client in practicing this.  (As of today, the Nevada Bar Association hasn’t come out one way or the other on this.)  UPL is subject to fines and jail time.

More importantly, many insurance companies for tax professionals have told their clients that preparing BOI reporting will not be covered under Errors & Omissions (E&O) insurance.  (E&O insurance covers errors and omissions a tax professional might make in servicing a client; it’s basically malpractice insurance for tax professionals.)  My insurance carrier has told me not to prepare BOI reports; I’ve heard from colleagues that other (again, most?) carriers are saying the same thing.  (I’ll have a post soon about “Comfort Letters;” those are vanishing because of pressure from E&O carriers.)

Tax professionals will likely tell their clients to talk to their attorneys or review the information on the FINCEN website.  Our draft Engagement Letters for the upcoming Tax Season state:

Beginning January 1, 2024, most US companies must by January 1, 2025 comply with certain disclosure requirements under the Corporate Transparency Act (“CTA”), including beneficial ownership information (“BOI”) reporting.  This engagement does not include assisting you with any CTA reporting requirements.  You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. We shall have no liability resulting from your failure to comply with the CTA. Information regarding the BOI reporting requirements can be found at We are not permitted to give you legal advice and recommend that you consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection and reporting of relevant ownership information.  [Emphasis in Original]

I’d like to provide this service for a couple of reasons.  First, I would be assisting clients and that’s the business I’m in.  Additionally, I can see this being an income generator for my business.  However, as of today I strongly suspect most tax professionals will be referring their clients to their attorneys to comply with BOI reporting.