Well-prepared accounting firms are primed to grow enormously with the launch of FinCEN’s Beneficial Ownership Information reporting rules.
Accounting firms across the U.S. need to be ready for the largest influx of new filing requests seen in decades, as 33,000,000 businesses will be forced to file confusing new reports. Properly positioned firms will be able to capture revenues in excess of $1,800 per hour and significantly grow their client lists.
After January 1st, 2024, every U.S. business must come into compliance with the Corporate Transparency Act (CTA) by filing a Beneficial Ownership Information report (BOI report). This is not a requirement that companies can ignore, as not filing or filing incorrect information will lead to FinCEN penalties, including $10,000 fines or up to 2 years in jail. Like any Department of Treasury filing, many U.S. companies will reach out to their accounting or law firms to offload this liability.
Estimates place the number of reporting companies that will reach out to professional help with Corporate Transparency Act compliance at 40% to 55% of the 33M reporting companies. That’s about 18M companies needing to file reports that will cost an average of $400 to $800 with firms. Not only is this a unique chance for prepared accounting firms to capture large numbers of new clients requiring help with this regulation, but it is also an opportunity to increase billings by at least 10% per current client based on FinCEN’s estimates of report volume.
In its first year alone, beneficial ownership information reporting will deliver nearly $10 billion in accounting and legal industry revenues. However, the complex requirements of these reports mean firms must have a plan ready to help clients and efficiently capture these revenues from reporting companies.
What is the Corporate Transparency Act and Beneficial Ownership Information Reporting?
The Corporate Transparency Act requires every smaller U.S. company to file Beneficial Ownership Information Reports to FinCEN starting in 2024 as a “reporting company.” This new law and reporting requirement is part of the U.S. anti money laundering regulations included within the national defense authorization act.
A company is only exempt from being classified as a reporting company if it surpasses $5M in gross receipts AND employs 21 or more full-time employees. Other exemptions exist for highly regulated industries; however, these are rarely applicable. FinCEN’s new reports require each reporting company disclose information about the reporting company and any individual who acts as a beneficial owner, including any individuals with substantial control or unique ownership interests.
Based on initial estimates by FinCEN, 33,206,418 existing reporting companies will need to file an initial report in 2024. Another 14,456,452 reports are estimated each year thereafter because any information changes within a reporting company mandate filing an “updated report” with FinCEN within 30 days of the change. These changes can be as minor as an owner changing their home address, which will trigger the requirement for the reporting company to file a new report to stay compliant and avoid penalties.
These enormous filing volumes will rapidly scale full-service accounting firms that are well-prepared for corporate transparency act compliance while leaving less-prepared firms in a poor position and at risk of losing clients. A full-service accounting firm provides a comprehensive suite of financial services that go beyond the basic preparation of financial statements and tax returns, instead catering to the diverse financial needs of businesses, encompassing services like audit and assurance, tax planning and compliance, business valuation, and financial planning.
Because the goal of a full-service accounting firm is to serve as a one-stop solution for all financial concerns, they must be ready for BOI reporting – which means planning ahead as to how they will collect information and file reports.
Even smaller firms that focus on tax filing can begin generating year-round revenue by offering CTA compliance to their clients. Reporting companies may need to change their information at any point in the year. If they know their tax filer can file an updated BOI report, they will gladly reach out to keep their company in compliance and avoid penalties. Reporting companies only have 30 days to file an updated BOI report, which means they cannot wait until the following filing season to submit.
How does my accounting firm prepare for the Corporate Transparency Act?
Accounting firms need to focus on two elements to grow or even maintain their standing in the accounting world: awareness and operations.
Awareness is as simple as firms beginning to plan content about the Corporate Transparency Act for their website, services list, blogs, and advertising campaigns. Due to FinCEN’s delays in making reporting companies aware of these new filing requirements, business owners will scramble in 2024 to find firms that can assist with filings. Firms should also secure complimentary listings on sites like FincenList.com, which is free for verified firms and helps direct business owners to accounting firms that can offer CTA filing services.
Operations planning requires firms to consider how they will collect information from each reporting company, manage files, and e-file large numbers of BOI reports for clients into FinCEN’s beneficial ownership secure system. This includes asking questions like “How many clients do we have, and what processes do we need to complete and track that many reports?”
Because every company must file a beneficial ownership information report, accounting firms should prepare to file reports for 100% of their existing clients and know how much staff time this will require for each reporting company. Additionally, this filing volume will detract from other services if the firm has no smooth operations plan ready for CTA compliance.
Streamlining these filing procedures keeps existing clients happy and compliant – while capturing new compliance revenues for the firm and attracting new clients that it can now bring into its full-service offerings from the 33M reporting companies across the U.S.
Software is the only practical solution for managing large filing volumes of Beneficial Ownership Information Reports.
If your accounting firm has over 50 clients, you must consider CTA filing software to manage your firm’s filings.
FinCEN’s beneficial ownership reports require collecting 50 to 100 unique data points from your clients, supporting document uploads, and clarifying many new definitions FinCEN uses just for this new law. Considering the penalties for filing incorrect information, clients must submit correct information the first time. Fortunately, software like FincenFetch was built for Beneficial Ownership Reporting and makes this process easy for firms to file any number of reports on behalf of their clients.
Beneficial ownership report software is easy to use and functions similarly to sending a DocuSign link. FincenFetch allows firms to send a “Fetch” link to any client, which brings the client to a guided process that allows them to submit the exact information needed for the firm to complete their FinCEN report. The interface saves their progress as they go and makes the information easily understandable. It also supports secure uploads of all ID documents needed for filing.
After the client has submitted their information, the system alerts the firm that the client’s submission is ready for review. Because the system simplifies the beneficial ownership report process, even junior staff at the firm can be assigned to review a large number of files quickly. Lastly, the system can quickly e-file the reports to FinCEN’s beneficial ownership secure system.
All of these tools are accessible from a dashboard that acts as a CRM specifically designed for firms supporting Corporate Transparency Act compliance. This dashboard provides a clear overview for any number of clients in one place, including showing progress and sending reminders to any clients who are falling behind in their submissions.
Without software in place, firms will need to craft custom PDF forms and utilize a separate system for file uploads. However, any form-based processes will lead to a long list of problems:
- PDF forms frustrate clients and reflect poorly on the firm: The immense amount of fields and confusing definitions will lead to a poor experience for clients attempting to fill out standard forms for this complex regulation as a reporting company. Whereas software will allow clients to complete a report in 10 to 15 minutes, forms will likely require more than an hour and a half, even for basic reports with few beneficial owners. CTA compliance software also offers a guided experience to help explain the requirements to clients and proves that the firm values their time.
- Document uploads still require an online platform to complete reports: A system will be required to collect identification documents uploaded by each beneficial owner or individual with substantial control. These uploads will need to be filed with the other forms used to collect the beneficial ownership information. It makes more sense to use a system that can not only capture uploads, but also handle the entire BOI reporting process.
- Firms need a CTA compliance file management system: Because nearly 100% of clients will need to file beneficial owner reports, having a filing management system in place will be critical in keeping the firm organized when dealing with hundreds or thousands of filings. Not managing Beneficial Ownership Information filings properly can lead to significant penalties for each client’s reporting company and its beneficial owners.
While corporate transparency act compliance is an enormous opportunity for firms to grow, this growth can quickly transform into chaos without software supporting the enormous upcoming filing volumes. We recommend scheduling a demo to learn how tools like FincenFetch prepare your firm for FinCEN’s beneficial owner report filing.
What should firms charge for Corporate Transparency Act compliance?
The question of pricing boils down to what each reporting company intends to pay for report preparation. Fortunately, FinCEN and others have studied and published numbers for this industry based on feedback from future reporting companies.
Initial filing revenue for first-time reports will bring $7.9 to $10.1 billion to law and accounting firms in 2024 alone from existing reporting companies submitting their first report. After this initial year, updated report filings will produce an additional $2.3 to $3.8 billion in revenue each year beginning in 2025. Revenue estimates are based on each reporting company paying $400 to $800 for an initial report filed by their firm and $200 to $400 for updated beneficial owner reports.
Considering the market price expected by each reporting company, it will be essential for firms to offer these reports as flat rate items (similar to tax returns) to be competitive and attract filing volume. Alternatively, they can bundle CTA compliance with existing filing services offered by the firm. Clients are less willing to work on a separate billable hour basis for these reports, except in the most complicated filing cases requiring a deep analysis of complicated ownership interests or substantial control requirements.
Flat rate pricing means that firms should strive to process more reports in fewer hours and analyze how they can leverage junior staff at the firm to complete large volumes of reports. Accepted pricing estimates published by FinCEN indicates that firms need an optimized system to collect, manage, and file BOI reports that fits profitably into the firm’s service offerings.
Compliance software allows firms to collect nearly $2,000 per hour for compliance filings while keeping prices affordable for each client’s reporting company. Two examples below compare firms that bill $600 per report, with one not using software, and the other leveraging software for collecting beneficial ownership information.
- Without Compliance Software: The firm spends 15 minutes with the reporting company to explain the law and sends a PDF to the client and a document collection link. The client spends 90 minutes filling out the PDF form, while also asking the firm several questions that require 30 minutes of emails and phone calls. Next, the firm must spend 45 minutes copying the information into a file management system, then another 30 reviewing the file with the client via zoom or a phone call. Next, the firm must copy this information again into the FinCEN filing system, requiring another 30 minutes of staff time. The firm can quickly spend three or more hours on a simple report, leading to subpar billing rates of $200 per hour.
- Using Compliance Software: The firm spends 15 minutes with the reporting company to explain the law and sends a FincenFetch “Fetch” link to the client which brings them to an easy online process. The client spends 15 minutes submitting their information and has their questions answered by the online guided experience of the platform. The firm can review the details quickly in the same system, does not need to reenter data, and can e-file directly. The firm now only needs to expend only 20 minutes per reporting company filing and can complete three or more filings per hour, leading to revenues of $1,800 per hour using a system that can be operated by junior staff at the firm. This system also produces happier clients with fewer report errors, who are more likely to submit their information on time and remain in compliance with the law.
When does my firm need to have a plan in place for Corporate Transparency Act filing services?
Beneficial Ownership Information reporting begins on January 1st, 2024, so it behooves firms to take action steps in quarter four of 2023 to avoid scrambling to manage client compliance.
Law firms focusing on formations and business law have even tighter timelines, as new companies formed in 2024 have only 30 days to file their initial reports and these firms must be included on the report as company applicants. Not only do attorneys need to make clients aware of this requirement, but they must also include the firm’s FinCEN identifier number as company applicants on each report. A company applicant is any third party that helps to create a reporting company, but company applicants do not hold ownership interest or exercise substantial control over a reporting company after the formation.
Fortunately, this increased filing burden will also drive large billing revenues to firms. The industry estimates that adding CTA compliance will increase yearly billings per client by $600 in 2024 from initial reports, and $400 in 2025 and every year after that from updated reports. Based on the number of filings, a software solution should be in place to keep clients happy, make compliance easy, reduce errors, and streamline this new filing service for the firm.
CTA compliance software is typically priced at less than 7% of new revenues generated from CTA compliance, making it an easy choice for forward-thinking firms. Additionally, the software becomes very profitable far beyond its cost when considering its ability to multiply hourly rates using a flat fee model and generate more report volume by allowing clients to request updates when their reporting company information changes.
You can schedule a demo of FincenFetch here to explore CTA compliance software for your firm.