Highlights
- The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) recently issued two new FAQs providing guidance on key taxpayer compliance measures.
- Areas covered in the FAQs include how to obtain a taxpayer identification number in a manner to ensure timely filing of a Beneficial Ownership Information (BOI) report, the proper taxpayer identification number to use when filing a BOI report on behalf of a disregarded entity that is a reporting company and best practices to follow if a report cannot be filed in a timely manner.
- The FAQs also provide practical, understandable guidance in a hyper-technical tax area and, more generally, advice on how a reporting company should document its efforts to comply with its reporting obligations in instances where it may not be able to file a true and correct BOI Report in a timely manner.
The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on July 24, 2024, issued two new FAQs providing guidance on 1) how to obtain a taxpayer identification number (TIN) in a manner to ensure timely filing of a Beneficial Ownership Information (BOI) report, 2) the proper taxpayer identification number to use when filing a BOI report on behalf of a disregarded entity (DRE) that is a reporting company and 3) best practices to follow if a report cannot be filed in a timely manner.
The FAQs provide practical, understandable guidance in a hyper-technical tax area and, more generally, advice on how a reporting company should document its efforts to comply with its reporting obligations in instances where it may not be able to file a true and correct BOI report in a timely manner.
This Holland & Knight alert examines the new FAQs and offers resources and best practices for navigating their complexities to help ensure taxpayer compliance.
FAQs
G. 3. How Can I Obtain a Taxpayer Identification Number for a New Company Quickly So that I Can File an Initial Beneficial Ownership Information Report on Time?
A reporting company must provide one of the following types of TINs on its BOI report if it has been issued a TIN: an Employer Identification Number (EIN), a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). If a foreign reporting company has not been issued a TIN, it must provide one issued by a foreign jurisdiction and the name of that jurisdiction.
The IRS offers a free online application for an EIN, which is provided immediately upon submission of the application. More information is available from the IRS. The agency also offers more information on and applications for EINs.
Most reporting companies should be able to use the EIN online application to request their EIN. However, there may be situations where a reporting company needs to file a Form SS-4, Application for Employer Identification Number in order to obtain an EIN. In particular, if the party responsible for the applicant is a foreign person who does not have an SSN or ITIN, they will not be able to use the online application portal. The IRS offers information on completing and submitting Form SS-4 by mail for fax.
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. In some circumstances, however, it may take six to eight weeks to receive an EIN. Thus, in some limited circumstances, a reporting company with no other TIN may not be able to obtain its EIN by its BOI report filing deadline.
A reporting company must include its TIN when reporting BOI to FinCEN and, indeed, will be unable to submit its BOI report without including a TIN. 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. (Updated July 24, 2024.)
F. 13. What Type of Tax Identification Number Should Be Reported by a Reporting Company That Is Disregarded for U.S. Tax Purposes?
A DRE, which is an entity that is disregarded for U.S. tax purposes, is not treated as an entity separate from its owner for U.S. tax purposes. Instead of a DRE being taxed separately, the entity's owner reports the entity's income and deductions as part of the owner's federal tax return.
A DRE must report BOI to FinCEN if it is a reporting company (see FAQ C. 1.). Such a reporting company must provide one of the following types of TINs on its BOI report if it has been issued a TIN: an EIN, SSN or ITIN. If a foreign reporting company has not been issued a TIN, it must provide one issued by a foreign jurisdiction and the name of that jurisdiction.
Consistent with IRS rules regarding the use of TINs, different types of such numbers may be reported for DREs under different circumstances:
- If the DRE has its own EIN, it may report that EIN as its TIN. If the DRE does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements as long as it can instead provide another type of TIN or, if a foreign reporting company not issued a TIN, a similar such number issued by a foreign jurisdiction and the name of that jurisdiction.
- If the DRE is a single-member limited liability company (LLC) or otherwise has only one owner who is an individual with an SSN or ITIN, the DRE may report that individual's SSN or ITIN as its TIN.
- If the DRE is owned by a U.S. entity that has an EIN, the DRE may report that other entity's EIN as its TIN.
- If the DRE is owned by another DRE or a chain of DREs, the DRE may report the TIN of the first owner up the chain of DREs that has a TIN as its TIN.
As explained above, a DRE that is a reporting company must report one of these TINs when reporting beneficial ownership information to FinCEN. (Issued July 24, 2024.)
Takeaways
- The two FAQs provide easily understandable information in a hyper-technical tax area, dealing with how to obtain a TIN generally and what type of TIN should be used for a reporting company, which is treated as a DRE for U.S. tax purposes.
- What you should know about DREs:
- A DRE is created under the U.S. tax code.
- A DRE is a business entity that 1) has a single owner, 2) is not organized as a corporation and 3) has not elected to be taxed as a separate entity for federal tax purposes. The owner of a DRE reports the income or loss of the DRE on the owner's tax return.
- If a DRE is a single-member LLC that is owned by an individual, the individual picks up the income or loss of the DRE.
- If a DRE is owned by an entity, either a corporation or partnership, the entity picks up the income or loss of the DRE.
- If the DRE is owned by another DRE or a chain of DREs, the ultimate owner of the top-tier DRE picks up the income or loss of the chain of DREs.
- Note, if an entity that otherwise would be a DRE has elected to be treated as a corporation, then the entity itself is a taxpayer and picks up its income or loss.
- A DRE cannot qualify for the Large Business Exemption because it does not file a federal income tax return but can qualify for the Subsidiary Exemption if owned by a corporation or partnership, but not an individual.
- Finally, note that while a DRE is disregarded solely for U.S. tax purposes, it is regarded as an entity for state law and commercial purposes.
- FAQ G. 3. makes an important point when it provides that if a reporting company is unable to obtain an EIN in time to file its BOI report before the due date, then it should prepare contemporaneous documentation explaining the efforts it had taken to comply with its BOI reporting obligation in a timely manner as a best practice. As a general matter, the preparation of contemporaneous documentation should be prepared in all instances where a reporting company is unable to properly and timely comply with its reporting obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.