In our ongoing series on Beneficial Ownership Information (BOI) reporting, we focus today on a critical question for tax professionals: What type of tax identification number (TIN) should be reported by a disregarded entity?
Key Considerations for Disregarded Entities
A disregarded entity, for U.S. tax purposes, is not treated as separate from its owner. Instead, its income and deductions are reported on the owner’s federal tax return. Despite this tax classification, disregarded entities must report BOI to FinCEN if classified as reporting companies under the Corporate Transparency Act (CTA).
When filing a BOI report, disregarded entities must provide a TIN if issued. Acceptable TIN types include:
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- Employer Identification Number (EIN).
- Social Security Number (SSN).
- Individual Taxpayer Identification Number (ITIN).
If a foreign reporting company lacks a U.S.-issued TIN, it must report the tax identification number provided by its foreign jurisdiction along with the jurisdiction’s name.
TIN Reporting Scenarios
Disregarded entities report TINs based on their unique ownership structure:
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- Entity with Its Own EIN:
If the disregarded entity has an EIN, it should report that EIN. Obtaining a new EIN is not mandatory solely for BOI compliance if another valid TIN is available, according to FAQ F.13.
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- Single-Owner Entity with SSN or ITIN:
If owned by an individual with an SSN or ITIN, the entity may report the owner’s SSN or ITIN as its TIN.
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- Entity Owned by a U.S. Entity with EIN:
If owned by a U.S.-based entity with an EIN, the disregarded entity may report the owning entity’s EIN.
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- Chain Ownership of Disregarded Entities:
If owned by another disregarded entity or a chain of disregarded entities, the reporting entity may use the TIN of the first owner in the chain with a valid TIN.
BUT … What happens if a U.S. disregarded entity does not have an EIN and its sole member is a foreign individual with no TIN?
At first glance, it might seem possible to report a foreign tax identification number according to FAQ F.13, but the regulations states otherwise.
The final regulations specifically addressed this issue and established that domestic reporting companies must provide a EIN. FinCEN reviewed comments on the regulations, and stated that “Most of reporting companies in the U.S. either have or can quickly obtain a TIN”. This results in that a domestic disregarded entity with no EIN, must obtain one to file the BOI report when its foreign owner does not hold a Social Security Number or ITIN. For foreign reporting companies that do not have a EIN, the regulations allow the use of a foreign tax identification number.
The typical scenario would be a case where a single-member LLC organized in Delaware is owned by a Mexican Sociedad Anonima (corporation). The LLC has no EIN. In that case, the LLC must obtain a EIN to file the BOI report. The LLC would not be allowed to use the foreign tax identification number of the foreign beneficial owner.
Relevance for Tax Professionals
Properly identifying the correct TIN for BOI reporting ensures compliance with FinCEN requirements while aligning with IRS regulations. Tax professionals, particularly those advising LLCs or foreign entities, should assess each entity’s ownership structure to determine the appropriate TIN and supports clients in achieving compliance while avoiding the risk of penalties.