When Is a Company Exempt From Filing Beneficial Ownership Information Reports?

 Posted on September 30, 2024 in Small Business Taxes

The U.S. government requires most businesses to disclose their ownership structure under new rules set forth by the Financial Crimes Enforcement Network (FinCEN). This disclosure is part of the Beneficial Ownership Information Reporting (BOIR) requirement, which is meant to increase transparency and prevent criminal activity such as money laundering. However, certain companies are exempt from this requirement.

Understanding whether a company is required to file a BOIR can help business owners, partners, shareholders, or other parties avoid penalties or other legal concerns. An experienced attorney can provide guidance and help ensure that small businesses or other companies maintain compliance with federal regulations.

What Are the Beneficial Ownership Information Reporting Requirements?

The BOIR requirement, which was put in place by the Corporate Transparency Act (CTA), mandates that most corporations, limited liability companies (LLCs), and other similar entities provide FinCEN with information about their "beneficial owners." A beneficial owner is any individual who directly or indirectly owns or controls 25 percent or more of a company’s ownership interests, as well as anyone else who exercises substantial control over the company’s operations. These rules are meant to deter illegal activities by making it harder for people to hide their identities behind complex corporate structures.

As part of the reporting process, companies must provide personal identifying information about each beneficial owner, such as their full legal name, date of birth, address, and a government-issued identification number.

Companies That Are Exempt from Filing BOIRs

While many businesses will need to comply with the BOIR requirements, FinCEN has identified several categories of companies that are exempt. These exemptions are designed to reduce the burden on large, regulated, or already transparent entities. The following types of companies are not required to file a Beneficial Ownership Information Report:

Securities Reporting Issuers

These include entities that issue and are registered to issue securities, as well as entities required to file supplementary information under the Securities Exchange Act.

Government-Owned Entities

Entities owned or controlled by a federal, state, or local government in the United States are exempt. These organizations are already accountable to the public and operate with significant oversight.

Banks and Credit Unions

Financial institutions, including banks and credit unions, are heavily regulated and must already comply with numerous federal reporting and transparency laws, making additional BOIR filings unnecessary. Companies that are classified as savings and loan holding companies or bank holding companies are also exempt.

Money Transmitting Businesses

Businesses that facilitate the transfer of funds are already required to register with FinCEN, so additional reporting requirements are unnecessary.

Other Securities Companies

Companies that serve as securities brokers or dealers and are required to register under the Securities Exchange Act are exempt from additional reporting requirements. Clearing or exchange agencies are also exempt. Other companies that are required to register with the Securities and Exchange Commission (SEC) are not required to file BOIRs.

Investment Companies

Companies classified as investment companies or investment advisors are generally exempt from reporting if they are required to register with the SEC. Venture capital fund advisers are also exempt if they have filed certain forms with the SEC.

Insurance Companies

Most insurers will be exempt. Insurance producers licensed at the state level that operate from physical office locations in the United States are also exempt.

Commodities Companies

Companies that are classified as registered entities under the Commodity Exchange Act are generally exempt from additional reporting requirements. Other entities required to register with the Commodity Futures Trading Commission are also exempt, including commodity pool operators, futures commission merchants, swap dealers, major swap participants, introducing brokers, retail foreign exchange dealers, and commodity trading advisors.

Public Accounting Firms

Since the Sarbanes-Oxley Act of 2002 requires these companies to register and provide certain information to the government, additional reporting is not required.

Public Utilities

Regulated utilities that provide electric power, water, sewer, natural gas, or telecommunications services are exempt.

Financial Market Utilities

Companies with this designation under the Payment, Clearing, and Settlement Supervision Act of 2010 qualify for this exemption.

Pooled Investment Vehicles

Investment companies may qualify for an exemption if they are operated or advised by exempt entities such as banks, credit unions, securities brokers or dealers, investment advisers, or venture capital fund advisers.

Tax-Exempt Organizations

Non-profit organizations, including charitable foundations, religious institutions, political organizations, and trusts that are tax-exempt under federal law, do not have to file BOIRs. Their non-profit status already requires them to disclose significant information to the IRS and the public. Entities that provide financial assistance to tax-exempt organizations or hold governance rights over these organizations are also exempt if they are owned or controlled exclusively by U.S. citizens or lawful permanent residents and derive the majority of their funding from U.S. citizens and lawful permanent residents.

Large Operating Companies

Companies that have more than 20 employees who work full-time, reported at least $5 million in gross receipts or sales in the previous year, and have an operating presence in the United States are exempt from filing BOIRs. These businesses are considered to be sufficiently transparent due to their size and financial activity.

Subsidiaries of Exempt Companies

A subsidiary that is wholly owned by an exempt entity typically does not need to file a BOIR. This ensures that complex corporate structures tied to publicly traded or exempt parent companies are not burdened with unnecessary filings.

Inactive Entities

Inactive entities that have been in existence for over 12 months, have no assets, and have not engaged in any business activity during the prior year may be exempt from BOIR requirements. This is intended to prevent unnecessary filings for companies that are not being used.

Contact a San Jose Business Tax Lawyer

While exemptions may be available for certain types of companies, businesses that are not exempt must ensure that they comply with their BOIR requirements. Failing to file the necessary reports or providing inaccurate information could result in significant fines and penalties. Given the complexity of these regulations and the serious consequences of non-compliance, it is important for business owners to fully understand their obligations under the law.

At John D. Teter Law Offices, our San Jose, CA business tax attorney can help business owners navigate the complexities of federal reporting requirements and take steps to mitigate any penalties they may face. Contact us at 408-866-1810 to schedule a consultation.