The Corporate Transparency Act (CTA) has introduced significant reporting requirements for millions of businesses across the United States, sparking numerous questions about compliance obligations. Since the law took effect on January 1, 2024, we’ve observed that even companies confident in their understanding of the requirements often encounter unexpected complexities when preparing their beneficial ownership reports.
In our series of articles regarding the Corporate Transparency Act and the related reporting requirements, we aim to:
- raise awareness among our clients and the business community in general,
- refresh the knowledge of the stakeholders,
- share insights on several topics often raised during the discussion of this topic.
First, we would like to reference our general summary of the Corporate Transparency Act (CTA), which outlines the rules regarding the companies subject to reporting, the deadlines and several key definitions.
Our second article focused on two critical topics relevant to many companies: the “Large operating company” exemption and the “Subsidiary of certain exempt entities” exemption.
This article addresses the most common questions we receive from business owners, legal counsel, and corporate officers, empowering you to navigate the compliance process. Whether you’re still determining if your company needs to file, gathering the required information, or preparing your submission, these insights will help clarify your obligations under the CTA.
1. Are single-member LLCs required to file a report?
- To answer the above, one should look at the definition of the reporting company. CTA states that “the term ‘reporting company’ – ‘‘(A) means a corporation, limited liability company, or other similar entity that is – ‘‘(i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe;…”. Based on the above, it can be concluded that single-member LLCs are considered reporting entities and thus should find a report with FinCEN unless they can satisfy the criteria of one of the exemptions, like the large operating company.
2. Are inactive entities required to file a report?
- Inactive entities are one of the 23 exemptions described by the CTA. Therefore, if the specific entity can satisfy the requirements, it is not obliged to file a BOI report. In practice, however, we find it next to impossible to fall into this category because the entity only qualifies for this exemption if all six of the following criteria apply:
- The entity was in existence on or before January 1, 2020
- The entity is not engaged in active business
- A foreign person does not own the entity
- The entity has not experienced any change in ownership in the preceding twelve-month period
- The entity or its affiliate has not sent or received any funds in an amount greater than $1,000
- The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
3. Should a Schedule C filer file a report?
- FinCEN did not issue official guidance on this topic. However, the prevailing industry interpretation is the following:
- Sole proprietorships, which are unincorporated businesses owned by a single individual, are not subject to the CTA because the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe does not create them LLCs being treated as a disregarded entity (generally filing Schedule C), as discussed earlier, are business entities and, therefore, required to provide the relevant information regarding their beneficial owners.
Should you have any questions about the CTA or the topics discussed above, please contact your Grassi advisor or Gabor Kiss directly.
Important Additional Resources
For official information and resources about the CTA, please visit the Financial Crimes Enforcement Network (FinCEN) website at https://www.fincen.gov/boi. To file your Beneficial Ownership Information report, visit the BOI E-Filing System at www.fincen.gov/boi-filing.
