Am I Required to File a Beneficial Ownership Report if My Entity is Dissolved or Closing This Year? Do I Meet the Inactive Exemption?

It has been nearly two months since our last blog post on the Beneficial Ownership Report and complying with the requirements in your filing. During that time, the office has received a number of calls about whether or not an entity must file a report if it is inactive? For example, what if an entity is dissolved or will be dissolved prior to the end of the calendar year 2024? Is a report still required? This post will dive into that issue.

A business that closed in 2024 may still need to file a BOI Report to FinCEN.

First, the Corporate Transparency Act did carve out an "inactive entity exemption" for filing. However, there are six (6) criteria that must be satisfied for an entity to be considered an inactive entity.

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

2. The entity is not engaged in active business.

3. The entity is not owned by a foreign person, whether

   directly or indirectly, wholly or partially.

4. The entity has not experienced any change in ownership

   in the preceding twelve-month period.

5. 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.

6. 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.

You can see how unclear many of these are, which is why it is essential that you contact a knowledgeable business attorney for your filing. You can contact Jeffrey today for assistance with your filing. At what point in time are we determining whether the entity was "not engaged in active business?" Is it now? Is it as of January 1, 2024? Is it by January 1, 2025? And what does inactive mean? Does it mean the date of the last sale or when paperwork was filed with the State? For example, what if ABC Pizza LLC sold its last pie in 2023 but the entity was not dissolved until May 2024?

The general guidance from FinCEN is that if your entity still existed as a legal entity, even if it was not conducting any sales or transactions, for ANY period of time in 2024 then it was still active and must file the BOI report. The dissolution of the entity is what is key for FinCEN. Now, the process may vary by state, so you should consult with a business attorney in your jurisdiction, but generally an entity files dissolution paperwork with its jurisdiction of creation, receives a certificate of dissolution, pays any outstanding taxes or fees, and winding up its affairs (e.g., fully liquidating itself and closing all bank accounts). This process must have been completed prior to January 1, 2024 for the entity to be considered inactive. Now, conversely if a business entity ceased to conduct business and formally dissolved before January 1, 2024, the date the requirement went into effect, then the entity was never subject to the BOI reporting requirement.

The criteria for this exemption is so vague that you can imagine many other questions. What does not sending or receiving any funds in an amount greater than $1,000 in the last 12 months mean? Does this mean aggregate or are we talking about individual transactions? Does my business paying monthly rent to the landlord in the amount of $1,100 last October disqualify my entity from the exemption?

These questions and many others require a clear understanding and careful analysis of your entity's situation, the Corporate Transparency Act and FinCEN's guidelines and guidance. We strongly suggest that you consult with local business counsel about your report.

Please note that this blog post is not an exhaustive examination of every type of entity. Rather, this is a cursory overview using some examples. This may not apply to your entity. If you would like us to review and discuss your specific entity, please contact our office today.

ATTORNEY ADVERTISING MATERIAL

The information in this blog is provided solely for informational purposes. The information provided is not intended to create an attorney-client relationship and shall not be construed as legal advice on any specific matter. Each legal matter is unique and requires an analysis based on the particular circumstances. As a result, the information provided here may not be applicable in every situation, including your situation, and action should not be taken based on this information without seeking specific legal advice based on particular circumstances. Results may vary depending on your particular facts and legal circumstance.