One of the most provocative questions regarding compliance with the Corporate Transparency Act (CTA) relates to whether a sole proprietorship operating under a “Doing Business As” (DBA) name must submit a Beneficial Ownership Information (BOI) Report.
Although there may be opinions that assert that DBAs are subject to reporting obligations, FINCEN has made the answer unmistakably clear and without room for doubt.
Sole Proprietorships and Reporting Company Criteria
Under the CTA, an entity qualifies as a “reporting company” if it is created by filing a document with a secretary of state or a similar office in the United States, or if it is a foreign entity registered to do business in the U.S. Sole proprietorships, including those operating under a DBA name, typically do not meet this threshold. A DBA name itself is not an independent legal entity but a trade name used by a sole proprietor to conduct business.
Importantly, the mere filing of documents to obtain:
- An IRS Employer Identification Number (EIN),
- A fictitious business name (DBA), or
- A professional or occupational license does not create a separate legal entity. Therefore, such filings do not render a sole proprietorship a “reporting company” under the CTA.
Example Scenario:
Consider the case of “John Smith DBA Smith Landscaping,” a sole proprietorship operating in the United States:
- Filing Activity: John Smith registers a fictitious business name (DBA) with the local county office.
- Business Structure: Smith Landscaping remains a sole proprietorship with no incorporation or limited liability structure.
- Compliance Requirement: Since no formation documents were filed with a secretary of state or equivalent office, the DBA does not create a new entity.
Consequently, Smith Landscaping is not considered a “reporting company” and is exempt from BOI reporting.
Relevance for Tax Professionals
Tax professionals must exercise diligence in determining whether a client’s business entity triggers BOI reporting requirements. For sole proprietorships operating under a DBA, the key consideration is whether the business entity was formed through formal filings with state authorities. Absent such filings, these entities generally fall outside the scope of CTA reporting requirements.
This analysis underscores the importance of understanding entity structures and filing requirements when advising clients on BOI compliance. For sole proprietorships operating with a DBA, the answer is very straightforward and unequivocal: without state-level formation or registration filings, the BOI reporting obligation does not apply.