Beneficial Ownership Information Reporting requires every domestic and foreign reporting company doing business in the United States to report its beneficial owners to the Financial Crimes Enforcement Network under the Corporate Transparency Act. These domestic or foreign entities are either registered to do business in the United States or have a presence in the United States.

Individual or reporting company beneficial owners are defined as those persons with a twenty-five percent (25%) or greater ownership interest in a reporting company, the officers and directors of a reporting company, or a person who owns or controls a reporting business, even if that person is not listed on the documents of the reporting company if they are primarily responsible for the reporting company or have substantial influence over the reporting company. Each beneficial owner must be identified by an acceptable identification document.

Click this link to read an introduction to the Corporate Transparency Act and the Beneficial Ownership Information Reporting requirements.

Click this link to read about what specific information a reporting company needs to report for FinCEN Beneficial Ownership Information Reporting.

Under the Corporate Transparency Act, there are twenty-three exemptions available to avoid status as a reporting company. These exempt entities are not subject to the beneficial ownership information reporting requirements, so needless to say many reporting companies will be interested in examining these exemptions to see if they qualify.

This article provides a list of the exemptions for reporting companies and gives some detailed analysis for each of the twenty-three exemptions.

List of Exemptions from Reporting Company Status Under the Corporate Transparency Act

The Corporate Transparency Act outlines the following twenty-three exemptions, providing a blanket of protection to certain entities from reporting company status. The following list enumerates these exemptions, and below the list are enumerated headings providing insight into how to qualify for each of the exemptions, so be sure to read the detailed explanations below the list for more details on each of the exemptions.

1. Securities reporting issuer;
2. Governmental authority;
3. Bank;
4. Credit union;
5. Depository institution holding company;
6. Money services business;
7. Broker or dealer in securities;
8. Securities exchange or clearing agency;
9. Other Exchange Act registered entity;
10. Investment company or investment adviser;
11. Venture capital fund adviser;
12. Insurance company;
13. State-licensed insurance producer;
14. Commodity Exchange Act registered entity;
15. Accounting firm;
16. Public utility;
17. Financial market utility;
18. Pooled investment vehicle;
19. Tax-exempt entity;
20. Entity assisting a tax-exempt entity;
21. Large operating company;
22. Subsidiary of certain exempt entities;
23. Inactive entity.

Exemption #1 – Securities Reporting Issuer

An entity qualifies for the securities reporting issuer exemption if either of the following two criteria apply:

An Issuer of Securities Registered under Section 12 of the Securities Exchange Act of 1934

The entity is an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l).

The Entity is Required to File Supplementary and Periodic Information under Section 15(d) of the Securities Exchange Act of 1934

The entity is required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)).

The Securities Reporting Issuer Exemption Requires Only One Statement to Apply

If (i) the entity is an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l); or (ii) the entity is required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), then it qualifies for the securities reporting issuer exemption.

Exemption #2 – Governmental Authority

An entity qualifies for the governmental authority exemption if both of the following criteria apply:

The Entity is Established under the laws of the United States, an Indian Tribe, a State, a Political Subdivision of a State, or Under an Interstate Compact

The entity is established under the laws of the United States, an Indian tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States.

The Entity Exercised Governmental Authority on Behalf of the United States, an Indian Tribe, State, or Political Subdivision

The entity exercises governmental authority on behalf of the United States or any such Indian tribe, State, or political subdivision.

The Governmental Authority Exemption Requires Both Statements to Apply

If (i) the entity is established under the laws of the United States, an Indian tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States, and (ii) the entity exercises governmental authority on behalf of the United States or any such Indian tribe, State, or political subdivision, then it qualifies for the governmental authority exemption.

Exemption #3 – Bank

An entity qualifies for the bank exemption if any of the following three criteria apply:

Federal Deposit Insurance Act Definition of a Bank

The entity is a “bank” as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).

Investment Company Act of 1940 Definition of a Bank

The entity is a “bank” as defined in section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)).

Investment Advisers Act of 1940 Definition of a Bank

The entity is a “bank” as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)).

The Bank Exemption Requires Only One Statement to Apply

If (i) the entity is a “bank” as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); (ii) the entity is a “bank” as defined in section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)); or (iii) the entity is a “bank” as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)), then it qualifies for the bank exemption.

Exemption #4 – Credit Union

An entity qualifies for the credit union exemption if either of the following two criteria apply:

Federal Credit Union Definition

The entity is a “federal credit union” as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).

State Credit Union Definition

The entity is a “state credit union” as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).

The Credit Union Exemption Requires Only One Statement to Apply

If (i) the entity is a “federal credit union” as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752); or (ii) the entity is a “state credit union” as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752), then it qualifies for the credit union exemption.

Exemption #5 – Depository Institution Holding Company

An entity qualifies for the depository institution holding company exemption if either of the following two criteria apply:

Bank Holding Company Definition

The entity is a “bank holding company” as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841).

Savings and Loan Holding Company

The entity is a “savings and loan holding company” as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. 1467a(a)).

The Depository Institution Holding Company Exemption Requires Only One Statement to Apply

If (i) the entity is a “bank holding company” as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); or (ii) the entity is a “savings and loan holding company” as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. 1467a(a)), then it qualifies for the depository institution holding company exemption.

Exemption #6 – Money Services Business

An entity qualifies for the money services business exemption if either of the following two criteria apply:

Registered Money Transmitting Business

The entity is a money transmitting business registered with FinCEN under 31 U.S.C. 5330.

Registered Money Services Business

The entity is a money services business registered with FinCEN under 31 CFR 1022.380.

The Money Services Business Exemption Requires Only One Statement to Apply

If (i) the entity is a money transmitting business registered with FinCEN under 31 U.S.C. 5330; or (ii) the entity is a money services business registered with FinCEN under 31 CFR 1022.380, then it qualifies for the money services business exemption.

Exemption #7 – Broker or Dealer in Securities

An entity qualifies for the broker or dealer in securities exemption if both of the following criteria apply:

Securities Exchange Act of 1934 Definitions of Broker or Dealer

The entity is a “broker” or “dealer,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).

Registration Under Section 15 of the Securities Exchange Act of 1934

The entity is registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o).

The Broker or Dealer in Securities Exemption Requires Both Statements to Apply

If (i) the entity is a “broker” or “dealer,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c); and (ii) the entity is registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o), then it qualifies for the broker or dealer in securities exemption.

Exemption #8 – Securities Exchange or Clearing Agency

An entity qualifies for the securities exchange or clearing agency exemption if both of the following criteria apply:

Securities Exchange Act of 1934 Definitions of Exchange or Clearing Agency

The entity is an “exchange” or “clearing agency,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).

Registration Under Section 6 or 17A of the Securities Exchange Act of 1934

The entity is registered under sections 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f, 78q-1).

The Securities Exchange or Clearing Agency Exemption Requires Both Statements to Apply

If (i) the entity is an “exchange” or “clearing agency,” as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c); and (ii) the entity is registered under sections 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f, 78q-1), then it qualifies for the securities exchange or clearing agency exemption.

Exemption #9 – Other Exchange Act Registered Entity

An entity qualifies for the other exchange act registered entity exemption if both of the following criteria apply:

Exemptions #1, #7, and #8 Do Not Apply

The entity is not a securities reporting issuer as defined in Exemption #1, broker or dealer in securities as defined in Exemption #7, or securities exchange or clearing agency as defined in Exemption #8.

Registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934

The entity is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).

The Other Exchange Act Registered Entity Exemption Requires Both Statements to Apply

If (i) the entity is not a securities reporting issuer as defined in Exemption #1, broker or dealer in securities as defined in Exemption #7, or securities exchange or clearing agency as defined in Exemption #8; and (ii) the entity is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), then it qualifies for the other exchange act registered entity exemption.

Exemption #10 – Investment Company or Investment Adviser

An entity qualifies for this exemption if both of the following criteria apply:

Investment Company Act of 1940 or Investment Advisers Act of 1940 Definition of an Investment Company or Investment Advisor

The entity is an “investment company” or “investment adviser” defined as either: (a) An investment company in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3); or (b) An investment adviser in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2).

Registration with the Securities and Exchange Commission under the Investment Company Act of 1940 or the Investment Advisers Act of 1940

The entity is registered with the Securities and Exchange Commission under either of these authorities: (a) The Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or (b) The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).

The Investment Company or Investment Adviser Exemption Requires Both Statements to Apply

If (i) the entity is an “investment company” or “investment adviser” defined as either: (a) An investment company in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3); or (b) An investment adviser in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2); and (ii) the entity is registered with the Securities and Exchange Commission under either of these authorities: (a) The Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or (b) The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), then it qualifies for the investment company or investment adviser exemption.

Exemption #11 – Venture Capital Fund Adviser

An entity qualifies for the venture capital fund adviser exemption if both of the following criteria apply:

Investment Adviser under the Investment Advisers Act of 1940

The entity is an investment adviser that is described in section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(l)).

Filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV with the Securities and Exchange Commission

The entity has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the Securities and Exchange Commission.

The Venture Capital Fund Adviser Exemption Requires Both Statements to Apply

If (i) the entity is an investment adviser that is described in section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(l)); and (ii) the entity has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the Securities and Exchange Commission, then it qualifies for the venture capital fund adviser exemption.

Exemption #12 – Insurance Company

An entity qualifies for this exemption if the following criterion applies:

Definition of Insurance Company from the Investment Company Act of 1940

The entity is an “insurance company” as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2).

The Insurance Company Exemption Requires the Statement to Apply

If the entity is an “insurance company” as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2), then it qualifies for the insurance company exemption.

Exemption #13 – State-Licensed Insurance Producer

An entity qualifies for the state-licensed insurance producer exemption if both of the following criteria apply:

Authorization by a State and Subject to State Supervision

The entity is an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State.

Operating Presence at a Physical Office within the United States

The entity has an operating presence at a physical office within the United States.

The term “operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.

The State-Licensed Insurance Producer Exemption Requires Both Statements to Apply

If (i) the entity is an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State; and (ii) the entity has an operating presence at a physical office within the United States, then it qualifies for the state-licensed insurance producer exemption.

Exemption #14 – Commodity Exchange Act Registered Entity

An entity qualifies for the commodity exchange act registered entity exemption if either of the following two criteria apply:

Registered Entity as Defined by the Commodity Exchange Act

The entity is a “registered entity” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).

Registration with the Commodity Futures Trading Commission under the Commodity Exchange Act

The entity is one of these entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act: (a) “Futures commission merchant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (b) “Introducing broker” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (c) “Swap dealer” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (d) “Major swap participant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (e) “Commodity pool operator” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (f) “Commodity trading advisor” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); or (g) “Retail foreign exchange dealer” as described in section 2(c)(2)(B) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)).

The Commodity Exchange Act Registered Entity Exemption Requires Only One Statement to Apply

If (i) the entity is a “registered entity” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); or (ii) the entity is one of these entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act: (a) “Futures commission merchant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (b) “Introducing broker” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (c) “Swap dealer” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (d) “Major swap participant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (e) “Commodity pool operator” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); (f) “Commodity trading advisor” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); or (g) “Retail foreign exchange dealer” as described in section 2(c)(2)(B) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)), then it qualifies for the commodity exchange act registered entity exemption.

Exemption #15 – Accounting Firm

An entity qualifies for the accounting firm exemption if the following criterion applies:

Sarbanes-Exley Act of 2002 Registration

The entity is a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212).

The Accounting Firm Exemption Requires the Statement to Apply

If the entity is a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212), then it qualifies for the accounting firm exemption.

Exemption #16 – Public Utility

An entity qualifies for the public utility exemption if both of the following criteria apply:

Regulated Public Utility Definition

The entity is a “regulated public utility” as defined in 26 U.S.C. 7701(a)(33)(A).

Provision of Certain Utilities

The entity provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.

The Public Utility Exemption Requires Both Statements to Apply

If (i) the entity is a “regulated public utility” as defined in 26 U.S.C. 7701(a)(33)(A); and (ii) the entity provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States, then it qualifies for the public utility exemption.

Exemption #17 – Financial Market Utility

An entity qualifies for the financial market utility exemption if the following criterion applies:

Financial Market Utility Designated by the Financial Stability Oversight Council

The entity is a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. 5463).

The Financial Market Utility Exemption Requires the Statement to Apply

If the entity is a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. 5463), then it qualifies for the financial market utility exemption.

Exemption #18 – Pooled Investment Vehicle

An entity qualifies for the pooled investment vehicle exemption if both of the following criteria apply:

Pooled Investment Vehicle by Certain Definitions or Filings

The entity is a pooled investment vehicle if either of these statements apply to the entity: (a) Is an investment company, as defined in section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a); or (b) Is a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of section 3(c) of that Act (15 U.S.C. 80a-3(c)); and is identified by its legal name by the applicable investment adviser in its Form ADV, (or successor form) filed with the Securities and Exchange Commission or will be so identified in the next annual updating amendment to Form ADV required to be filed by the applicable investment adviser pursuant to rule 204-1 under the Investment Advisers Act of 1940 (17 CFR 275.204-1).

Operated or Advised by an Entity Exempt Under Exemption #3, #4, #7, #10, or #11

The entity is operated or advised by any of these types of exempt entities: (a) Bank, as defined in Exemption #3; (b) Credit union, as defined in Exemption #4; (c) Broker or dealer in securities, as defined in Exemption #7; (d) Investment company or investment adviser, as defined in Exemption #10; or (e) Venture capital fund adviser, as defined in Exemption #11.

The Pooled Investment Vehicle Exemption Requires Both Statements to Apply

If (i) the entity is a pooled investment vehicle if either of these statements apply to the entity: (a) Is an investment company, as defined in section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a); or (b) Is a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of section 3(c) of that Act (15 U.S.C. 80a-3(c)); and is identified by its legal name by the applicable investment adviser in its Form ADV, (or successor form) filed with the Securities and Exchange Commission or will be so identified in the next annual updating amendment to Form ADV required to be filed by the applicable investment adviser pursuant to rule 204-1 under the Investment Advisers Act of 1940 (17 CFR 275.204-1); and (ii) the entity is operated or advised by any of these types of exempt entities: (a) Bank, as defined in Exemption #3; (b) Credit union, as defined in Exemption #4; (c) Broker or dealer in securities, as defined in Exemption #7; (d) Investment company or investment adviser, as defined in Exemption #10; or (e) Venture capital fund adviser, as defined in Exemption #11, then it qualifies for the pooled investment vehicle exemption.

Special Rule for Foreign Pooled Investment Vehicles

If an entity meets the criteria of the pooled investment vehicle exception and is formed under the laws of a foreign country, the entity is subject to a separate reporting requirement. These companies are referred to as foreign pooled investment vehicles.

Foreign pooled investment vehicles do not need to report information about each beneficial owner and company applicant if the company was formed under the laws of a foreign country and would be a reporting company if not for this pooled investment vehicle exemption. If this special rule applies, one individual who exercises substantial control over the company must be reported and there is no need to report any company applicants. If more than one individual exercises substantial control over the foreign pooled investment vehicles, the individual who has the greatest authority over the strategic management of the company must be reported.

Exemption #19 – Tax-Exempt Entity

An entity qualifies for the tax-exempt entity exemption if any of the following four criteria apply:

Internal Revenue Code Section 501(c) Tax-Exempt Entity

The entity is an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (determined without regard to section 508(a) of the Internal Revenue Code) and exempt from tax under section 501(a) of the Internal Revenue Code.

Lost Tax-Exempt Status within the Last 180 Days

The entity is an organization that is described in section 501(c) of the Internal Revenue Code, and was exempt from tax under section 501(a) of the Internal Revenue Code, but lost its tax-exempt status less than 180 days ago.

Internal Revenue Code Section 527(e)(1) Political Organization

The entity is a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a) of the Code.

Internal Revenue Code Section 4947(a)(1)-(2) Trust

The entity is a trust described in paragraph (1) or (2) of section 4947(a) of the Code.

The Tax-Exempt Entity Exemption Requires Only One Statement to Apply

If (i) the entity is an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (determined without regard to section 508(a) of the Internal Revenue Code) and exempt from tax under section 501(a) of the Internal Revenue Code; (ii) the entity is an organization that is described in section 501(c) of the Internal Revenue Code, and was exempt from tax under section 501(a) of the Internal Revenue Code, but lost its tax-exempt status less than 180 days ago; (iii) the entity is a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a) of the Code; or (iv) the entity is a trust described in paragraph (1) or (2) of section 4947(a) of the Code, then it qualifies for the tax-exempt entity exemption.

Exemption #20 – Entity Assisting a Tax-Exempt Entity

An entity qualifies for the entity assisting a tax-exempt entity exemption if all four of the following criteria apply:

Exclusivity of Operation for Financial Assistants or Governance Rights

The entity operates exclusively to provide financial assistance to, or hold governance rights over, any tax-exempt entity described by Exemption #19.

Defined in Internal Revenue Code Section 7701(a)(30)

The entity is a United States person as defined in section 7701(a)(30) of the Internal Revenue Code of 1986.

Beneficial Ownership or Control Exclusively by United States Citizens or Lawfully Admitted Permanent Residents

The entity is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence.

“Lawfully admitted for permanent residence” is defined in section 101(a) of the Immigration and Nationality Act (8 U.S.C. 1101(a)).

Majority of Funding or Revenue from United States Citizens or Lawfully Admitted Permanent Residents

The entity derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence.

The Entity Assisting a Tax-Exempt Entity Exemption Requires All Statements to Apply

If (i) the entity operates exclusively to provide financial assistance to, or hold governance rights over, any tax-exempt entity described by Exemption #19; (ii) the entity is a United States person as defined in section 7701(a)(30) of the Internal Revenue Code of 1986; (iii) the entity is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence; and (iv) the entity derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence, then it qualifies for the tax-exempt entity exemption.

Exemption #21 – Large Operating Company

An entity qualifies for the large operating company exemption if all six of the following criteria apply:

Twenty or more Full-Time Employees

The entity employs more than 20 full-time employees, when applying the meaning of full-time employee provided in 26 CFR 54.4980H-1(a) and 54.4980H-3.

In general, “full-time employee” means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer.

More Than Twenty Full-Time Employees in the United States

More than 20 full-time employees of the entity are employed in the “United States,” as that term is defined in 31 CFR 1010.100(hhh).

Operating Presence at a Physical Office within the United States

The entity has an operating presence at a physical office within the United States.

“Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.

United States Tax Return Demonstrating More Than $5,000,000 in Gross Receipts or Sales

The entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.

Gross Receipts or Sales Reported on Applicable Internal Revenue Service Tax Form

The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.

Gross Receipts or Sales Requirement from United States Sources

When gross receipts or sales from sources outside the United States, as determined under federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.

The Large Operating Company Exemption Requires All Statements to Apply

If (i) the entity employs more than 20 full-time employees, when applying the meaning of full-time employee provided in 26 CFR 54.4980H-1(a) and 54.4980H-3; (ii) more than 20 full-time employees of the entity are employed in the “United States,” as that term is defined in 31 CFR 1010.100(hhh); (iii) the entity has an operating presence at a physical office within the United States; (iv) the entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales; (v) the entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form; and (vi) when gross receipts or sales from sources outside the United States, as determined under federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000, then it qualifies for the large operating company exemption.

Exemption #22 – Subsidiary of Certain Exempt Entities

An entity qualifies for the subsidiary of certain exempt entities exemption if the following criterion applies:

Ownership Interest Control or Ownership

The entity’s ownership interests are controlled or wholly owned, directly or indirectly, by any of these types of exempt entities: (a) Securities reporting issuer, as defined in Exemption #1; (b) Governmental authority, as defined in Exemption #2; (c) Bank, as defined in Exemption #3; (d) Credit union, as defined in Exemption #4; (e) Depository institution holding company, as defined in Exemption #5; (f) Broker or dealer in securities, as defined in Exemption #7; (g) Securities exchange or clearing agency, as defined in Exemption #8; (h) Other Exchange Act registered entity, as defined in Exemption #9; (i) Investment company or investment adviser, as defined in Exemption #10; (j) Venture capital fund adviser, as defined in Exemption #11; (k) Insurance company, as defined in Exemption #12; (l) State-licensed insurance producer, as defined in Exemption #13; (m) Commodity Exchange Act registered entity, as defined in Exemption #14; (n) Accounting firm, as defined in Exemption #15; (o) Public utility, as defined in Exemption #16; (p) Financial market utility, as defined in Exemption #17; (q) Tax-exempt entity, as defined in Exemption #19; or (r) Large operating company, as defined in Exemption #21.

The Subsidiary of Certain Exempt Entities Exemption Requires the Statement to Apply

If the entity’s ownership interests are controlled or wholly owned, directly or indirectly, by any of these types of exempt entities: (a) Securities reporting issuer, as defined in Exemption #1; (b) Governmental authority, as defined in Exemption #2; (c) Bank, as defined in Exemption #3; (d) Credit union, as defined in Exemption #4; (e) Depository institution holding company, as defined in Exemption #5; (f) Broker or dealer in securities, as defined in Exemption #7; (g) Securities exchange or clearing agency, as defined in Exemption #8; (h) Other Exchange Act registered entity, as defined in Exemption #9; (i) Investment company or investment adviser, as defined in Exemption #10; (j) Venture capital fund adviser, as defined in Exemption #11; (k) Insurance company, as defined in Exemption #12; (l) State-licensed insurance producer, as defined in Exemption #13; (m) Commodity Exchange Act registered entity, as defined in Exemption #14; (n) Accounting firm, as defined in Exemption #15; (o) Public utility, as defined in Exemption #16; (p) Financial market utility, as defined in Exemption #17; (q) Tax-exempt entity, as defined in Exemption #19; or (r) Large operating company, as defined in Exemption #21, then it qualifies for the subsidiary of certain exempt entities exemption.

Exemption #23 – Inactive Entity

An entity qualifies for this exemption if all six of the following criteria apply:

Date of Registration or Creation

The entity was in existence on or before January 1, 2020.

Not Engaged in Active Business

The entity is not engaged in active business.

No Ownership by a Foreign Person

The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially.

“Foreign person” means a person who is not a United States person. A United States person is defined in section 7701(a)(30) of the Internal Revenue Code of 1986 as a citizen or resident of the United States, domestic partnership and corporation, and other estates and trusts.

No Change in Ownership in the Preceding Twelve Months

The entity has not experienced any change in ownership in the preceding twelve-month period.

Limitation on Sent or Received Funds

The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period.

No Assets

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.

The Inactive Entity Exemption Requires All Statements to Apply

If (i) the entity was in existence on or before January 1, 2020; (ii) the entity is not engaged in active business; (iii) the entity is not owned by a foreign person, whether directly or indirectly, wholly or partially; (iv) the entity has not experienced any change in ownership in the preceding twelve-month period; (v) the entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period; and (vi) 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, then it qualifies for the inactive entity exemption.

Understanding the Exemptions to the Reporting Company Definition for Beneficial Ownership Information Reporting

To ensure your organization navigates the complexities of beneficial ownership reporting regulations effectively, consult with experienced professionals. At San Diego Corporate Law, our team of corporate attorneys is well-versed in the nuances of these exemptions and is ready to guide you through every step. Reach out to us to schedule a consultation now.