Are Inactive Businesses Exempt From The Corporate Transparency Act?

There are 23 separate exemptions from the CTA's beneficial ownership reporting requirement. The exemptions are listed in order in FinCEN's Final Rule at 31 CFR 1010.380 and take effect on January 1, 2024.

CTA Exemptions Generally

In general, the CTA exempts companies that already report their beneficial ownership to the U.S. government under a separate legal framework. FinCEN's Final Rule addresses each exemption separately in subsection 1010.380(c)(2).

Exemption Number 23 - Inactive entities

Subsection 1010.380(c)(2)(xxiii) of the Final Rule exempts:

(xxiii) Inactive entity. Any entity that:

(A) Was in existence on or before January 1, 2020;

(B) Is not engaged in active business;

(C) Is not owned by a foreign person, whether directly or indirectly, wholly or partially;

(D) Has not experienced any change in ownership in the preceding twelve month period;

(E) 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

(F) 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 exemption in subsection (xxiii) creates a narrow law for certain inactive entities formed on or before January 2, 2020 that are not owned by a foreign person and who meet the other requirements.

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