BOI Compliance for Law Firms: Essential Knowledge You Need to Know

Ensure your law firm and attorneys meet all BOI compliance requirements. This guide covers essential knowledge, best practices, and key steps to maintain transparency and avoid penalties. Read this article to learn more

Understanding the reporting requirement on beneficial ownership information (BOI) is important. Congress has highlighted its role in identifying individuals who misuse business entities for money laundering and other financial crimes in the U.S.

The Corporate Transparency Act (CTA) requires millions of entities, including law firms, to report beneficial ownership information to FinCEN. Your law firm must understand its BOI reporting requirements and provide the necessary solutions for its clients.

Now, let’s explore the pivotal role that Law Firms play in the BOI reporting process.

Importance of BOI Reporting for Law Firms

Although there has been considerable focus on how the BOI Reporting impacts small businesses, it will also have a notable effect on law firms in several ways:

1. Your law firm may be classified as a reporting company.
2. Members of your firm, such as attorneys, lawyers, paralegals, or other staff, could be identified as company applicants.
3. You should educate your clients about the CTA’s reporting requirement for beneficial ownership information (BOI).
4. You should be prepared to guide your clients on complying with the BOI reporting requirement.

Can a Law Firm be a Reporting Company?

You can certainly be considered a reporting company under the Corporate Transparency Act (CTA). Domestic and foreign (non-U.S.) reporting companies are required to submit reports on beneficiary ownership information. The reporting rule defines a law firm as a domestic reporting company if it is a corporation, LLC, or other entity formed by filing a document with a Secretary of State or a similar office under the laws of a state or Indian tribe. Then, you must file a Beneficial Ownership Information (BOI) report with FinCEN.

The CTA requires the reporting company to file updated reports within 30 days of any change in the information in the previously filed BOI report by the reporting company.

Are Law Firms Exempt from Beneficial Ownership Information Reporting?

You do not have any exemptions under the BOI reporting requirements. However, there is an exemption for “Large operating company.” A large operating company is defined as an entity that has all of the following parameters:

1. Employment: More than 20 full-time employees are employed in the United States.
2. Physical Office: Having a physical office operating within the United States.
3. Financial Threshold: Filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.

You must file a BOI report if you don’t satisfy any of the above-mentioned parameters.

Note: Any organization that fits the definition of a reporting company must file a BOI report unless it meets one of the 23 exemptions outlined in the final rule. These exemptions primarily apply to entities already heavily regulated by the government, such as publicly traded companies, financial institutions, insurance companies, public accounting firms, and tax-exempt entities.

Can lawyers be beneficial owners?

A beneficial owner is defined as any individual who directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests. Regarding your law firm, it’s essential to understand that your lawyers generally do not qualify as beneficial owners under the Corporate Transparency Act (CTA).

General Legal Services: If you provide general legal services to other company, you are not considered “beneficial owners” of the corresponding reporting company. When you offer ordinary, arms-length advisory or other third-party professional services to a client, you are not considered to be in “substantial control” of the reporting company.

Agents for a Reporting Company: If you act as an agent for a reporting company, there is an important exception to note. If you are designated as agents, you may qualify for the “nominee, intermediary, custodian, or agent” exception from the beneficial owner definition. This means that your role as an agent does not automatically make you a beneficial owner of the reporting company you represent.

Senior Officers as Beneficial Owners: However, the situation changes if you or someone in your law firm holds the general counsel position in a reporting company. In this capacity, you are considered a “Senior officer,” which means you have substantial control over the company. As a senior officer, you would be classified as a beneficial owner under the CTA, necessitating the revelation of your beneficial ownership information.

Practical Implications for Your Law Firm: Understanding these distinctions is crucial for ensuring compliance with the CTA. While your general legal services do not make you a beneficial owner, any roles involving substantial control or senior positions within a reporting company will require you to report beneficial ownership information. This minute understanding helps you navigate your responsibilities effectively and advise your clients accurately.

How do you consider your lawyers to be company applicants?

As a lawyer at your firm, you may be classified as a company applicant if you file documents that create or register a reporting company. Company applicants often work for business formation services or law firms like yours.

You qualify as a company applicant if you directly file the document establishing or registering the reporting company. Even if multiple individuals are involved in this filing, you can still be considered a company applicant if you are primarily responsible for directing or managing the filing process.

For example, you are a company applicant if you are an attorney at your law firm that provides business formation services and oversees preparing and filing a reporting company’s incorporation documents. Similarly, suppose a paralegal at your firm directly files these documents at your direction. In that case, both you and the paralegal are recognized as company applicants for the reporting company.

Deadline and Penalties of BOI Reporting for Your Law Firm

The deadline for submitting your BOI report is based on your law firm’s formation or establishment date.

• If your firm was formed or established before January 1, 2024, the report submission deadline is January 1, 2025.
• If your firm was formed or established on or after January 1, 2024, the report must be submitted within 90 calendar days of the effective registration date.
• If your firm was formed or established on or after January 1, 2025, the report must be submitted within 30 calendar days from the effective registration date.

If you do not submit your BOI report by the specified deadline, the Financial Crimes Enforcement Network (FinCEN) has the authority to impose penalties, which can be civil or criminal.

• Civil penalties for non-compliance can add up to as much as $591 per day.
• On the other hand, criminal penalties can be much more severe, ranging from a minimum of $10,000 to a maximum of two years in prison.

The Role of Law Firms in BOI Reporting: Notifying Clients

As their attorney, clients may come to you seeking guidance on the new Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA).

• Understanding the Requirement: First, ensure you and your team fully understand the BOI reporting requirements. The CTA mandates that certain businesses disclose information about their beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Beneficial owners exercise substantial control over a company or own at least 25% of its interests.
• Identifying Affected Clients: Identify which clients are considered reporting companies under the CTA. These typically include corporations, limited liability companies (LLCs), and other similar entities. Make a list of clients who must comply with these new reporting obligations.
• Crafting the Notification: Draft a clear and concise notification explaining the BOI reporting requirements to your clients. Begin by briefly explaining the Corporate Transparency Act and its purpose in enhancing transparency and preventing financial crimes.
• Reporting Requirements: Outline the specific BOI reporting requirements, including what information must be reported, such as each beneficial owner’s name, birthdate, address, and identifying number (e.g., driver’s license or passport number).
• Deadlines and Compliance: Inform your clients about the compliance deadlines. Emphasize the importance of timely reporting to avoid penalties, including significant fines and potential criminal charges.

Communicating the Notification: Distribute the notification through multiple channels to ensure it reaches all relevant clients. Use email, postal mail, and even follow-up phone calls or meetings to discuss the requirements and address any questions they may have.

Why You Should Implement BOI Reporting for Your Clients

Implementing Beneficial Ownership Information (BOI) reporting for your clients is crucial for several reasons:

• Ensure Compliance: First and foremost, BOI reporting helps ensure compliance with the Corporate Transparency Act (CTA), a legal requirement. Non-compliance can lead to significant penalties for your clients, including hefty fines and possible criminal charges.
• Maintain Business Integrity: Accurately reporting beneficial ownership is vital in maintaining the integrity of your client’s business operations. This helps prevent the misuse of business entities for illicit activities such as money laundering and tax evasion, thereby enhancing your client’s reputation and trustworthiness in the eyes of regulators, financial institutions, and other stakeholders.
• Strengthen Client Relationships: Offering BOI reporting services positions you as a trusted advisor who proactively safeguards your client’s interests. This can strengthen your client relationships and differentiate your firm from competitors. By staying ahead of regulatory requirements, you demonstrate your commitment to compliance and your expertise in navigating complex legal landscapes.
• Improve Internal Processes: Implementing BOI reporting can help streamline your client’s internal processes. By maintaining accurate and up-to-date ownership information, your clients can benefit from improved transparency and accountability within their business operations, making managing and mitigating risks easier.
• Providing Ongoing Support: Offer ongoing support to your clients as they navigate the BOI reporting process. This could include regular updates on any changes to the regulations, reminders of upcoming deadlines, and continued assistance with compliance.

Implementing BOI reporting for your clients ensures compliance, enhances business integrity, builds stronger client relationships, and improves internal business processes.

Streamlined BOI Reporting for Law Firm with TaxBandits

When you use TaxBandits for BOI reporting, your law firm can simplify the entire process and ensure compliance with the Corporate Transparency Act efficiently and accurately. TaxBandits provides a user-friendly platform that simplifies complex reporting requirements, allowing you to focus more on serving your clients and less on administrative burdens.

With TaxBandits, you can improve your firm’s operational efficiency, reduce the risk of errors, and provide a seamless experience for your clients. Embrace the convenience and reliability of TaxBandits to manage your BOI reporting needs effectively and confidently. Our software provides a white-label solution, allowing you to customize the interface to match your firm’s branding and enhance your professional image.

Integrating the BOIR API lets you easily link our software with your current systems to ensure smooth and automated data transfer. Furthermore, we offer strong team and client management features to help you effectively organize and handle your BOI reporting responsibilities. This feature boosts productivity by facilitating clear communication, efficient task management, and seamless data sharing within your teams.