FinCEN BOI Reporting: Understanding the Large Operating Company Exemption
The Corporate Transparency Act (CTA) has ushered in a new era of financial transparency for businesses operating in the United States.
As of January 1, 2024, millions of entities are required to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). However, not all companies fall under this requirement. One of the most significant exemptions is the "large operating company" category.
This article explores what constitutes a large operating company under the CTA. It also examines how this exemption affects subsidiaries—a topic that we’re often asked about during our monthly webinars on BOI reporting requirements.
BOI Reporting Exemptions: An Overview
While the CTA introduces sweeping reporting requirements for many businesses, it also includes specific exemptions. FinCEN has outlined 23 categories of entities that are exempt from BOI reporting.
- Securities reporting issuers
- Governmental authorities
- Banks
- Credit unions
- Depository institution holding companies
- Money services businesses
- Brokers or dealers in securities
- Securities exchange or clearing agencies
- Other Exchange Act registered entities
- Investment companies or investment advisers
- Venture capital fund advisers
- Insurance companies—Including any company whose “primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies,” as per 15 U.S.C. 80a-2
- State-licensed insurance producers
- Commodity Exchange Act registered entities
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities—Under Sections 501(a), 501(c), 527(a), 527(e)1, and 4947(a) of the Internal Revenue Code of 1986
- Entities assisting a tax-exempt entity—Any entity that exclusively governs or financially assists the above tax-exempt entities
- Large operating companies—Companies with over 20 full-time employees and over $5 million in annual sales
- Subsidiaries of certain exempt entities—Exemptions 1–21, excluding #6 and #18
- Inactive entities—Entities that existed on or before January 1, 2020, which currently aren’t engaged in any business activity or hold any assets, and haven’t had any ownership changes or received over $1,000 in the previous 12 months
Despite the seemingly large number of exemptions, they’re designed to exclude only entities that are already subject to significant oversight or are considered low-risk for the types of financial crimes the CTA aims to prevent. It's important to also note that these exemptions are generally narrow in scope and application.
The Large Operating Company Exemption: Who Qualifies?
Among the 23 exemptions from BOI reporting requirements, the large operating company exemption stands out as one of the broadest and most significant. This exemption is particularly relevant for established businesses with substantial operations in the United States.
Let's break down what qualifies a company for this exemption and why it's so important.
Qualifying Criteria
- Employee Count: The company must employ more than 20 full-time employees in the United States. Full-time typically means working at least 30 hours per week or 130 hours per month. The employee count cannot be aggregated across affiliated entities.
- Physical Presence: The company must maintain an operating presence at a physical office within the United States. This office cannot be shared with any entity other than affiliates of the reporting company.
- Revenue Threshold: The company must have filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales. For entities filing consolidated returns, the gross receipts or sales of the entire consolidated group are considered.
Importance of Accurate Assessment
It's crucial for companies to accurately assess whether they meet all three criteria. Mistakenly claiming this exemption when not all criteria are met could result in non-compliance with the CTA, potentially leading to significant penalties.
Remember, if your company doesn't meet all three criteria for the large operating company exemption, you may still qualify for one of the other 22 exemption categories. Unsure whether you qualify? Take our quick and easy quizquiz to find out.
In the next section, we'll explore how this exemption applies (or doesn't apply) to subsidiaries of large operating companies.
Subsidiaries and the Large Operating Company Exemption
One common question we receive during our BOI reporting webinars is whether subsidiaries of large operating companies are automatically exempt from reporting requirements. The answer is more nuanced than a simple yes or no.
FAQ L4 clearly states that companies cannot consolidate employees across related entities to meet the 20+ full-time employee threshold for the large operating company exemption. Therefore, a subsidiary cannot claim exemption based solely on its parent company's status as a large operating company.
According to FAQ L6, the subsidiary exemption only applies when an exempt entity fully (100%) owns or controls a company's ownership interests, either directly or indirectly. Partial ownership or control, even if it's a majority, does not qualify for the exemption.
FAQ L9 addresses situations where a company hasn't yet filed its federal tax return for the previous year:
- Companies should use the return filed "in" the previous year to determine qualification for the exemption.
- If a subsequent tax return shows less than $5 million in gross sales or receipts, disqualifying the company from the exemption, it has 30 days from the date of that tax return to file an initial BOI report.
- Only U.S.-source gross receipts or sales are considered for this threshold.
- Regularly assess each entity within your corporate structure against the exemption criteria.
- Be prepared to file BOI reports for subsidiaries that don't meet the large operating company exemption, even if the parent company is exempt.
- Implement a system to track changes in employee count, revenue, and physical presence for all entities to ensure timely reporting of any changes in exemption status.
Understanding these nuances is crucial for maintaining compliance with the CTA. In complex corporate structures, it's entirely possible that a parent company may be exempt while its subsidiaries are not, or vice versa.
Effortless BOI Reporting with Harbor Compliance
Looking to outsource your BOI Reporting but aren't sure what to look for in a provider? Check out our comprehensive BOI Reporting Solution buying guide.
Or, if you’re ready to select your provider, then look no further. Harbor Compliance offers a streamlined BOI Reporting Service tailored for businesses of all sizes—from small LLCs to large corporations and qualifying nonprofits.
- Initial report preparation and submission
- Ongoing support for report updates at no additional cost
- Periodic reminders to check for necessary BOI updates
- Optional Record Manager add-on for centralized tracking of leadership and ownership details
We’ll help you ensure seamless FinCEN compliance, letting you focus on what you do best: running your business.
Harbor Compliance’s Suite of Compliance Solutions
Beyond BOI reporting, Harbor Compliance offers a wide range of additional services to meet your organization's regulatory needs:
- Entity Management: Full-cycle administrative support
- Registered Agent Services: Reliable state communication management
- Licensing Support: Assistance with general and industry-specific licenses
- Document Services: Expedited filings and retrieval of critical documents
- Nonprofit Solutions: Specialized services for charitable organizations
By working with Harbor Compliance, you’ll comply with state and federal regulations, reduce your administrative workload, and gain peace of mind.
Conclusion
The large operating company exemption under the CTA offers significant relief for established businesses. However, its application is nuanced, especially for complex corporate structures.
To qualify, companies must meet all three criteria: 20+ full-time U.S. employees, a physical U.S. office, and $5M+ in annual revenue. Crucially, subsidiaries must independently satisfy these requirements, regardless of their parent company's status. Given the potential for mixed exempt and non-exempt entities within a single corporate family, regular assessment of each entity's status is essential for maintaining compliance.
The complexity of these requirements underscores the value of partnering with compliance experts, like Harbor Compliance.
Get in touch to learn how our expertise can streamline your CTA compliance processes.
About Harbor Compliance
- Recognized by Inc. 5000 five times and by Deloitte twice.
- Serving the industry for 12 years.
- Trusted by over 40,000 clients.
Beneficial Owners - The individuals who ultimately own or control a company
Reporting Companies - Companies required to report beneficial ownership information. Generally, either a corporation, limited liability company (LLC), or otherwise created in the US by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe or a foreign company registered to do business in any US state or Indian tribe by such a filing.
Exemptions - Twenty-three types of entities are exempt from beneficial ownership reporting requirements. These entities include publicly traded companies, tax-exempt nonprofits, and certain large operating entities.
FinCEN - The Financial Crimes Enforcement Network, a bureau of the US Department of the Treasury.
Beneficial Ownership Reporting - Reporting companies will submit beneficial ownership information electronically through FinCEN's website: www.fincen.gov/boi
