Simplified Guide to 23 Corporate Transparency Act Exemptions

The Corporate Transparency Act (CTA) can be a bit confusing, but don’t worry; we’ll explain these 23 exemptions and how they help companies deal with fewer filings.

Starting January 1, 2024, most small U.S. businesses must file special Beneficial Ownership Information reports with FinCEN under the new Corporate Transparency Act. These reports must include the beneficial owners of the reporting company, which are any person who owns 25 percent of the reporting company or has the ability to make important decisions (substantial control).

Who is Subject to Reporting Beneficial Ownership Information to FinCEN?

A reporting company is a domestic or foreign corporation, business entity, LLC or similar entity formed or registered in a state or a jurisdiction, and has no exemption to CTA filing. It’s important to note that the CTA also outlines penalties for reporting companies that fail to file, including fines of up to $10,000 and potential jail time.

If you operate a law or accounting firm and assist clients with their Corporate Transparency Act (CTA) filings, using a powerful tool like FincenFetch allows you to automatically check hundreds of thousands of client companies to see if they qualify for exemptions.

There are 23 types of entities that are not required to disclose. Some exemptions can be applied to entities which currently face substantial reporting requirements including public and regulated corporations and banks. If your business fits into one of these categories, you might not have to do those reports for FinCEN. Let’s take a closer look below!

Which Entities Are Exempt From Submitting BOI Reports to FinCEN?

The CTA offers 23 distinct exemptions, providing relief from some or all reporting obligations. These exemptions include:

1. Large operating company (over 20 employees and $5MM in annual sales) 
2. Inactive entity created before 1/1/2020 that holds no assets, is not engaged in any business, has no foreign owners, and has not sent or received money or changed ownership in the prior 12 months.
3. Registered Bank 
4. Registered Credit union
5. Registered Depository institution holding company 
6. Registered Money services business
7. SEC-registered Broker or dealer in securities 
8. SEC-registered Securities exchange or clearing agency 
9. Other Exchange Act registered entity  
10. SEC-registered Investment company or investment adviser 
11. SEC-registered Venture capital fund adviser  
12. Registered Insurance company
13. State-licensed insurance producer  
14. Company registered under the Commodity Exchange Act
15. registered Accounting firm  
16. Public utility company
17. Financial market utility designated by the Financial Stability Oversight Council.
18. Pooled investment vehicle operated by an SEC registered person.
19. Tax-exempt entity  
20. Entity that exclusively exists to provide financial assistance or governance to a tax-exempt entity.
21. Securities reporting issuer 
22. Subsidiary of certain exempt entities 
23. Governmental authority

Exemption for Large Operating Companies (Exemption #1)

An organization qualifies for this exemption if it meets all six of these criteria:

1. The organization employs more than 20 full-time workers. A full-time worker, as defined in 26 CFR 54.4980H-1(a) and 54.4980H-3, generally works at least 30 hours per week.
2. More than 20 full-time organization workers work in the “United States,” as defined in 31 CFR 1010.100(hhh).
3. The organization has an active office located within the United States. The organization regularly conducts its business at a physical location in the United States that it either owns or leases, and this location is separate from any other unrelated entity’s place of business.
4. The organization filed a Federal income tax or information return in the United States for the previous year, demonstrating gross receipts or sales exceeding $5,000,000. If the organization is part of a group of affiliated corporations under 26 U.S.C. 1504, refer to the consolidated return for the group.
5. The organization reported this gross receipts or sales amount exceeding $5,000,000 (net of returns and allowances) on its IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or another applicable IRS form.
6. Even after excluding gross receipts or sales from sources outside the United States, following Federal income tax principles, the total amount of gross receipts or sales still exceeds $5,000,000.

Exemption for Inactive Entities (Exemption #2)

An organization qualifies for this exemption if it meets all six of these criteria:

1. The organization existed on or before January 1, 2020.
2. The organization is not actively conducting any business.
3. The organization is not owned, either directly or indirectly, wholly or partially, by a foreign individual or entity. A foreign person is someone who is not a United States person. A United States person includes U.S. citizens, residents, domestic partnerships, corporations, and certain estates and trusts, as defined in section 7701(a)(30) of the Internal Revenue Code of 1986.
4. The organization has kept ownership the same in the past twelve months.
5. The organization has yet to send or receive more than $1,000 in funds directly or through any financial account in which the organization or any affiliate had an interest in the past twelve months.
6. The organization holds no assets, whether in the United States or abroad. It has no ownership interest in any corporation, limited liability company, or similar entity.

Bank Exemption (Exemption #3)

An organization qualifies for this exemption if it meets any of these three conditions:

1. The organization fits the definition of a “bank” according to section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
2. The organization fits the definition of a “bank” according to section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)).
3. The organization fits the definition of a “bank” according to section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)).

Credit Union Exemption (Exemption #4)

An organization qualifies for this exemption if it meets either of these two conditions:

1. The organization fits the definition of a “Federal credit union” according to section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
2. The organization fits the definition of a “State credit union” according to section 101 of the Federal Credit Union Act (12 U.S.C. 1752).

Holding Company Exemption (Exemption #5)

An organization qualifies for this exemption if it meets either of these two conditions:

1. The organization fits the definition of a “bank holding company” according to section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841).
2. The organization fits the definition of a “savings and loan holding company” according to section 10(a) of the Home Owners’ Loan Act (12 U.S.C. 1467a(a)).

Money Transmitter Business Exemption (Exemption #6)

An organization qualifies for this exemption if it meets either of these two conditions:

1. The organization is registered with FinCEN as a money-transmitting business under 31 U.S.C. 5330.
2. The organization is registered with FinCEN as a money services business under 31 CFR 1022.380.

Securities Broker or Dealer Exemption (Exemption #7)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization fits the definitions of a “broker” or “dealer” according to section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).
2. The organization is registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o).

Securities Exchange or Clearing Agency Exemption (Exemption #8)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization fits the definitions of an “exchange” or “clearing agency” according to section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).
2. The organization is registered under sections 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f, 78q-1).

Exemption for Other Registered Entities (Exemption #9)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization is not a securities reporting issuer as defined in exemption 1, a securities broker or dealer as defined in exemption 7, or a securities exchange or clearing agency, as defined in exemption 8.
2. The organization is officially registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).

Exemption for Investment Companies or Investment Advisers (Exemption #10)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization is defined as an “investment company” or an “investment adviser” under either of the following:

• It’s identified as an investment company according to section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3).
• It’s categorized as an investment adviser according to section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2).

2. The organization has formally documented with the Securities and Exchange Commission under either of these authorities:

• The Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
• The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).

Exemption for Venture Capital Fund Advisers (Exemption #11)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization is an investment adviser that falls under the description in section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(l)).
2. The organization has submitted Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any updated form as required, to the Securities and Exchange Commission.

Exemption for Insurance Companies (Exemption #12)

An organization qualifies for this exemption if it meets the following condition:

1. The organization fits the definition of an “insurance company” according to section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2).

Exemption for State-Licensed Insurance Producers (Exemption #13)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization is an insurance producer authorized by a State and supervised by the State’s insurance commissioner or a similar official or agency of a State.
2. The organization has a physical office presence within the United States, which means that it regularly conducts its business at a physical location in the United States that it owns or leases. This location is separate from any other unrelated entity’s place of business.

Exemption for Commodity Exchange Act Registered Entities (Exemption #14)

An organization qualifies for this exemption if it meets either of these two criteria:

1. The organization is considered a “registered entity” according to section 1a of the Commodity Exchange Act (7 U.S.C. 1a).

2. The organization is one of the following types of entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act:

• “Futures commission merchant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “Introducing broker” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “Swap dealer” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “Major swap participant” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “Commodity pool operator” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “Commodity trading advisor” as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
• “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)).

Exemption for Public Accounting Firms (Exemption #15)

An organization qualifies for this exemption if it meets the following condition:

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

Exemption for Public Utilities (Exemption #16)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization falls under the definition of a “regulated public utility” as stated in 26 U.S.C. 7701(a)(33)(A).
2. The organization offers telecommunications, electrical power, natural gas, or water and sewer services within the United States.

Exemption for Financial Market Utilities (Exemption #17)

An organization qualifies for this exemption if it meets the following condition:

1. The organization is a financial market utility officially 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).

Exemption for Pooled Investment Vehicles (Exemption #18)

An organization qualifies for this exemption if it meets both of these two conditions:

1. The organization qualifies as a pooled investment vehicle if any of these statements apply:

• It is officially considered an investment company according to section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)).
• It would be classified as an investment company under that section but is excluded from that definition by paragraph (1) or (7) of section 3(c) of that Act (15 U.S.C. 80a-3(c)) and is named by the relevant investment adviser in its Form ADV (or an updated form) submitted to the Securities and Exchange Commission or will be detailed in the next annual update required by the applicable investment adviser under rule 204-1 of the Investment Advisers Act of 1940 (17 CFR 275.204-1).

2. The organization is operated or advised by any of these types of exempt entities:

• A bank, as defined in Exemption #3.
• A credit union, as described in Exemption #4.
• A securities broker or dealer, as defined in Exemption #7.
• An investment company or investment adviser, as defined in Exemption #10.
• A venture capital fund adviser, as described in Exemption #11.

*Special rule for foreign pooled investment vehicles;

Suppose an entity meets the criteria of Exemption #18 and is formed under the laws of a foreign country. In that case, the entity is subject to a separate reporting requirement. These companies are referred to as “foreign pooled investment vehicles” in the Reporting Rule, their reporting requirement is explained at the end of our guide.

Exemption for Tax-Exempt Entities (Exemption #19)

An organization qualifies for this exemption if it meets any of these four criteria:

1. The organization is a group defined in section 501(c) of the Internal Revenue Code of 1986 (Code). It doesn’t have to pay taxes under section 501(a) of the Code.
2. The organization is a group defined in section 501(c) of the Code. It was tax-exempt under section 501(a) but lost its tax-exempt status less than 180 days ago.
3. The organization is a political organization, as defined in section 527(e)(1) of the Code, and doesn’t have to pay taxes under section 527(a) of the Code.
4. The organization is a trust described in paragraph (1) or (2) of section 4947(a) of the Code.

Exemption for Entities Assisting Tax-Exempt Entities (Exemption #20)

An organization qualifies for this exemption if it meets all four of these criteria:

1. The organization’s sole purpose is to provide financial help to, or have control over, a tax-exempt entity described in Exemption #19.
2. The organization is a United States entity, as defined in section 7701(a)(30) of the Internal Revenue Code of 1986.
3. The organization is owned or controlled exclusively by one or more United States entities that are either United States citizens or have been legally admitted for permanent residence. “Legally admitted for permanent residence” is defined in section 101(a) of the Immigration and Nationality Act (8 U.S.C. 1101(a)).
4. The organization receives most of its funding or income from one or more United States entities that are either United States citizens or have been legally admitted for permanent residence.

Securities reporting issuer (Exemption #21)

You can use this exemption if your organization falls into one of these two categories:

1. Your organization issues a particular type of investment called “securities,” and it’s officially registered with a law called the Securities Exchange Act of 1934.
2. Your organization must provide extra financial information because of the same law.

Exemption for Subsidiaries of Certain Exempt Entities (Exemption #22)

An organization qualifies for this exemption if it meets this criterion:

The organization’s ownership interests are controlled or wholly owned, either directly or indirectly, by any of these types of exempt entities:

• Large operating company, as defined in Exemption #1.
• Bank, as described in Exemption #3.
• Credit union, as described in Exemption #4.
• Depository institution holding company, as described in Exemption #5.
• Securities broker or dealer, as described in Exemption #7.
• Securities exchange or clearing agency, as described in Exemption #8.
• Other Exchange Act registered entity, as described in Exemption #9.
• Investment company or investment adviser, as described in Exemption #10.
• Venture capital fund adviser, as described in Exemption #11.
• Insurance company, as described in Exemption #12.
• State-licensed insurance producer, as described in Exemption #13.
• Commodity Exchange Act registered entity, as described in Exemption #14.
• Accounting firm, as described in Exemption #15.
• Public utility, as described in Exemption #16.
• Financial market utility, as described in Exemption #17.
• A tax-exempt entity, as described in Exemption #19.
• Securities reporting issuer, as defined in Exemption #21.
• Governmental authority, as described in Exemption #23.

Government Authority Exemption (Exemption #23)

This exemption applies when an organization meets both of these conditions:

1. The organization establishes itself under the laws of the United States, an Indian tribe, a State, or a part of a State’s government, or it forms through an agreement between two or more States.
2. The organization possesses the authority to make decisions and take actions on behalf of the United States, an Indian tribe, a State, or one of its subdivisions.

Reporting Requirements When Special Rules Apply to Your Company

FinCEN’s Reporting Rule has four special rules that might change what you need to report. Let’s break them down:

1. Owned by an exempt entity: If your company’s ownership is through other entities that don’t need to report, you can report the names of those entities instead of each owner. For instance, if a big operating company owns a part of your company, you can list the big operating company’s name instead of providing information about each owner.
2. Minor child: If a minor child is a beneficial owner, you don’t need to report their information. Instead, report the required information about the child’s parent or legal guardian.
3. *Foreign pooled investment vehicle: If your company is formed in a foreign country and would be a reporting company except for the pooled investment vehicle exemption, you only need to report one person with substantial control over the company. There is no need to report other company applicants.
4. Company applicant reporting for existing companies: If your reporting company existed or registered before January 1, 2024, you don’t have to report company applicant information. Just make sure to mention this in your BOI report.

What Are the Reporting Requirements If My Previous Exemption Expires?

Suppose your company used to be exempt from reporting but no longer qualifies. In that case, you must file a BOI report within 30 calendar days of losing the exemption. 

Now, let’s talk about when you need to file:

• Reports can be submitted starting January 1, 2024.
• If your company was established or registered before January 1, 2024, you get some extra time. You have until January 1, 2025, to file your initial BOI reports.
• For companies created or registered on or after January 1, 2024, you’ll have 30 days after you receive notice of your company’s creation or registration to file your initial BOI reports.

What If My Company Does Not Qualify For Any Exemptions?

If your company doesn’t qualify for Corporate Transparency Act exemptions and you need clarification on the filing process, TurboCTA can help you. TurboCTA is a straightforward tool that helps with Beneficial Ownership Information reporting. It has a step-by-step platform, allowing you to finish your FinCEN filing in about 10 minutes. Plus, when updates are needed, they simplify that process for you also.

Filing CTA Reports for Clients

If you find the complexities of compliance and filings under the Corporate Transparency Act overwhelming, consider exploring FincenFetch’s capabilities through a demo. FincenFetch offers user-friendly tools to simplify data collection, enhance client communication, and streamline filing processes for reporting companies, which is especially beneficial for law and accounting firms. By employing this platform, you can effectively navigate reporting requirements and minimize the chances of errors, ultimately leading to greater operational efficiency. If this piques your interest, scheduling a demo can provide a firsthand look at how FincenFetch can benefit your CTA compliance workflow.

To get more information and stay updated about the Corporate Transparency Act, visit CorporateTransparencyAct.org. Keep yourself informed about the latest developments and resources concerning corporate transparency and compliance.