TaxBandits Knowledge Base

Can companies qualify for large operating company exemption without filing their income tax return?

The Corporate Transparency Act (CTA) allows companies to qualify for an exemption if their federal income tax or information return filed “in” the previous year shows more than $5 million in gross sales or receipts. FinCEN’s regulations use “for” the last year instead. If a company hasn’t filed its return for the previous year when it needs to report beneficial ownership information or if it was for an earlier year, it should use the most recently filed return to determine if it qualifies for the exemption.

Suppose a company relies on this exemption but later files a tax return showing less than $5 million in gross sales or receipts and no longer qualifies for this or any other exemption. In that case, it must file a BOIR within 30 days from the tax return filing date.

The federal income tax or information return must show that the company had more than $5,00,000 in gross receipts or sales. This amount is reported as total sales after subtracting returns and allowances on forms like IRS Form 1120, consolidated IRS Form 1120, Form 1120-s, Form 1065, or any relevant IRS form. Gross receipts or sales from sources outside the U.S. should not be included when determining this amount, following federal income tax rules.