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🧟 “Zombie” 🧟 or Inactive Companies for Purposes of the BOI Report: Practical Example

BOI Report

08.20.2025

This article explores the criteria and practical application of the inactive entity exemption established in the Corporate Transparency Act (CTA). An entity deemed an “inactive company” is exempted from filing the Beneficial Ownership Information (BOI) Report.

To illustrate the importance of this exemption, let’s review a common scenario:

Suppose “ABC, LLC” is an entity registered in the United States in 2018. The original owner, a U.S. citizen, sold 20% of the shares to a foreign entity in 2021, transferring the proceeds to a bank account, money that has not been moved or used since its deposit. In 2022, “ABC, LLC” ceased operations and is now seeking to claim the inactive entity exemption for the Beneficial Ownership Information (BOI) Report. Is the entity an “inactive company” for purposes of the BOI report?

Inactive Company Analysis

  1. Verification of Incorporation Date
      • Requirement: To qualify as inactive, the entity must have been formally constituted and registered before January 1, 2020.
      • Fact: “ABC, LLC” was established in 2018.
      • Result: Meets this criterion.
  2. Confirmation of Commercial Inactivity
      • Requirement: The entity must not be engaged in active business activities, implying an absence of regular economic operations, production, or services.
      • Fact: Since 2022, “ABC, LLC” has no employees, generates no income, and maintains no active contracts.
      • Result: Meets this criterion.
  3. Review of National Ownership
      • Requirement: There should be no involvement of foreign persons, either directly or indirectly, meaning the entity must be entirely U.S.-owned.
      • Fact: 80% of the shares belong to a U.S. citizen, but 20% belong to a foreign person residing in another country.
      • Result: Does not meet this criterion. The foreign ownership disqualifies the entity as inactive.
  4. Assessment of Ownership Changes
      • Requirement: No change in ownership should have occurred within the 12 months preceding the analysis.
      • Fact: There have been no ownership transfers in the past 12 months.
      • Result: Meets this criterion.
  5. Financial Transactions Analysis
      • Requirement: The entity must not have conducted or received transfers exceeding $1,000 in the same period, indicating limited financial activity.
      • Fact: In the past 12 months, “ABC, LLC” has not conducted financial transactions exceeding $1,000 and holds no assets in the U.S. or abroad.
      • Result: Meets this criterion.
  6. Lack of Assets
      • Requirement: The entity must not own assets, either in the U.S. or abroad, nor hold interests in other entities.
      • Fact: “ABC, LLC” holds a bank account with $5,000 and a 10% interest in another limited partnership abroad.
      • Result: Does not meet this criterion. The existence of financial assets and interests in another entity disqualifies “ABC, LLC” as inactive.

 

Relevance for Tax Professionals
Although “ABC, LLC” meets several criteria, it does not qualify for the inactive entity exemption due to the 20% foreign ownership (Step 3) and asset ownership (Step 6). Therefore, it must file the BOI Report. This example demonstrates that a comprehensive analysis of all criteria is essential to correctly determine the applicability of the inactive company exemption. A tax professional must inquire all of this information, to be able to determine the applicability of the respective exemptions under the CTA.