What this is: In the United States regulations for the Corporate Transparency Act (CTA) require reporting companies to provide their IRS tax identification number (TIN) on Beneficial Ownership Information (BOI) reports filed with the Financial Crimes Enforcement Network (FinCEN). Until now, disregarded entities were uncertain as to whether they could use their owner’s TIN for this purpose. FinCEN has now clarified this issue.
What this means: FinCEN has now issued clear guidance on whether a reporting company that is a disregarded entity without its own TIN must obtain its own TIN or if it can use its owner’s TIN to meet BOI reporting requirements.
The federal Corporate Transparency Act (CTA) requires, among other things, that non-exempt “reporting companies” (corporations, LLCs and other similar entities) include their IRS tax identification number on their Beneficial Ownership Information (BOI) reports filed with the Financial Crimes Enforcement Network (FinCEN). A tax identification number (TIN) is a 9-digit number that the IRS requires both individuals and business entity tax filers to provide on their tax returns. Typically, the TIN for an individual would be that person’s social security number (SSN) and the TIN for a business entity would be its employer identification number (EIN). A business entity that has employees or files excise tax returns must apply for and obtain an EIN from the IRS. And, if a business entity wants to open a bank account in its name, it will usually apply for an EIN.
The CTA’s Implementing Regulations Require Each Reporting Company to Provide its TIN on Initial BOI Reports
FinCEN’s BOI reporting regulations state, among other things, that each initial BOI report shall include the TIN “of the reporting company.” FinCEN states in its preamble to its BOI reporting rules that “while there may be some situations in which a company that is created or registered to do business in the US will not have a TIN, the vast majority of reporting companies will have a TIN or will easily be able to obtain one. FinCEN goes on to say that it “believes that a single identification number for reporting companies is necessary to ensure that the beneficial ownership registry is administrable and useful for law enforcement, to limit opportunities for evasion or avoidance, and to ensure that users of the database are able to reliably distinguish between reporting companies.” Neither the regulation nor the preamble expressly addresses whether “disregarded entities” without their own TIN can use their owner’s TIN on the BOI report, or if they must obtain their own TIN for BOI reporting purposes. However, on July 24, 2024, FinCEN issued new FAQs addressing TINs and this issue specifically.
What is a ‘Disregarded Entity’?
A “disregarded entity” is an entity that, for federal income tax purposes, is ignored or “disregarded.” A Single Member Limited Liability Company (SMLLC) is the most common type of disregarded entity. SMLLCs are a popular entity type for various business purposes, including real estate holdings. A SMLLC is an LLC owned by a single member, who can be either an individual or another business entity.
What if the Reporting Company is a Disregarded Entity and Does Not Have its Own TIN?
Unless a single member elects to have its LLC taxed separately like a corporation, by default, the IRS will disregard the SMLLC and the SMLLC’s income taxes will “pass through” to the single member’s tax return. Therefore, only the single member would need to provide either their SSN or EIN on the tax return and the disregarded SMLLC will not necessarily have its own EIN. Until recently, this posed an issue for reporting companies that are disregarded SMLLCs because the box on the BOI report form requiring a TIN cannot be left blank and the CTA’s regulations require the TIN of the reporting company.
Interested in this topic? Get answers to the 10 most frequently asked questions about the Corporate Transparency Act (CTA) in the US.
FinCEN’s FAQ F. 13.
Disregarded entities without their own EINs were uncertain as to whether FinCEN would permit them to use their owner’s EIN or SSN. On July 23, 2024, FinCEN clarified this issue via FAQ F. 13. which states in part:
“Consistent with rules of the Internal Revenue Service (IRS) regarding the use of TINs, different types of tax identification numbers may be reported for disregarded entities under different circumstances:
- If the disregarded entity has its own EIN, it may report that EIN as its TIN. If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN or, if a foreign reporting company not issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
- If the disregarded entity is a single-member limited liability company (LLC) or otherwise has only one owner that is an individual with an SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.
- If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.
- If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities that has a TIN as its TIN.
As explained above, a disregarded entity that is a reporting company must report one of these tax identification numbers when reporting beneficial ownership information to FinCEN.”
[Issued July 24, 2024]
In sum, FinCEN has now made clear that if a disregarded entity has its own EIN, it may report that EIN as its TIN on its BOI report; or, if it does not have its own EIN, it may use its owner’s SSN, Individual Tax Identification Number (ITIN) or EIN as its TIN on its BOI report according to the specifics stated above.
What if the Reporting Company Applies for an EIN but Does Not Receive it Before its Initial BOI Report is Due?
Additionally, on July 24, 2024 FinCEN issued another FAQ related to TINs, but not specific to disregarded entities. FinCEN’s new FAQ G. 3. addresses what a reporting company should do if it has applied for an EIN but has not yet received it by the time its initial BOI report is due.
FinCEN’s FAQ G. 3. States in Part:
“Most reporting companies should be able to use the EIN online application to apply for their EIN. However, there may be situations where a reporting company needs to file a Form SS-4, Application for Employer Identification Number (https://www.irs.gov/pub/irs-pdf/fss4.pdf) in order to obtain an EIN. In particular, if the responsible party for the applicant is a foreign person that does not have an SSN or ITIN, they will not be able to use the online application portal. For information about completing and submitting the Form SS-4 by mail for fax, see the Instructions to Form SS-4 (https://www.irs.gov/instructions/iss4).
For Forms SS-4 submitted by fax, applicants should generally receive their EIN in four business days. For Forms SS-4 submitted by mail, applicants should receive their EIN in four to five weeks. However, in some circumstances, it may take six to eight weeks to receive an EIN. Thus, in some limited circumstances, a reporting company with no other tax identification number may not be able to obtain its EIN by its BOI report filing deadline.
A reporting company must report its tax identification number when reporting beneficial ownership information to FinCEN and, indeed, will be unable to submit its BOI report without including a tax identification number. In such circumstances, in addition to making all reasonable efforts to file its BOI report in a timely manner (including requesting all necessary information as early as practicable), the reporting company should file its report as soon as it receives its EIN. As a best practice, the reporting company may consider retaining documentation associated with its efforts to comply with the BOI reporting requirements in a timely manner.”
[Issued July 24, 2024]
In sum, the IRS issues EINs immediately when an entity applies for one online. However, under certain circumstances, rather than applying online for an EIN, the entity will need to submit Form SS-4 (Application for EIN) via fax or mail which delays receipt of the EIN. If a reporting company’s EIN does not arrive prior to its initial BOI report due date, the reporting company cannot submit its BOI report until it receives its EIN. In that circumstance, the reporting company should submit its BOI report as soon as it receives its EIN (and should consider retaining documentation showing it made efforts to comply with the BOI reporting requirements in a timely manner).
Conclusion
With the addition of FAQs F. 13. and G. 3., FinCEN has clarified 2 issues regarding TINs on BOI reports:
- Which TIN a disregarded entity can use on its BOI report if it does not have its own EIN; and
- What a reporting company should do if it has applied for an EIN but does not receive it prior to the due date for its initial BOI report.
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To qualify for the CTA’s large operating company exemption, what criteria must be met?
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- Must employ more than 20 full-time employees in the US; 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 the employer;
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What do the 2 FAQs issued by FinCEN on July 8, 2024 address?
On July 8, FinCEN issued 2 new FAQs regarding reporting companies that “cease to exist” prior to their deadline to file an initial BOI report: FAQ C. 13., addresses companies that ceased to exist before January 1, 2024; and FAQ C. 14., addresses reporting companies created or registered in 2024 or later and cease to exist before their initial BOI report is due.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
