Feb 13, 2024
If the DISC is a subsidiary, and parent is exempt as a large operating company, then the DISC is exempt as a subsidiary.
New Beneficial Ownership Information Filing Requirements and your IC-DISC
Beyond the direct implications of the Farhy case to Section 6038(b) penalties, this USTC decision could have significant further implications by extension to other information reporting obligations as well as determining the relevant statute of limitations that should apply to enforcement of the penalty provisions.
Most taxpayers benefitting from the IC-DISC are likely to qualify for the large operating company exemption to the Beneficial Ownership Information disclosure requirements.
A large operating company must meet all of the following criteria
- It employs more than 20 full-time employees. (Generally, “full-time employee” means an employee employed by the entity for an average of 30 or more hours of service per week.)
- More than 20 of the entity’s full-time employees are employed in the United States.
- The entity has an operating presence at a physical office within the United States.
- The entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.
- The company reported >$5,000,000 in gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated Form 1120, Form 1120-S, Form 1065, or other IRS form.
- The gross receipts or sales amount remains greater than $5,000,000 after excluding gross receipts or sales from sources outside the United States.
- Even if your operating company is exempt due to meeting these criteria, your IC-DISC, if a brother-sister entity will not be exempt.
- If a subsidiary, the IC-DISC will be exempt if its parent company is exempt.
- If not exempt, any person owning 25% or more, directly or indirectly is a beneficial owner;
- Any member of the IC-DISC board of directors is likely a beneficial owner; and
- Any Officer of the IC-DISC is likely a beneficial owner
- The initial Beneficial Ownership Information report is due on or before January 1, 2025. If after filing a report there is a change in the beneficial ownership, a revised report must be filed within 30 days.
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