Since Congress first introduced the Corporate Transparency Act (“CTA”) and the beneficial ownership information reporting framework in January 2021, much of the focus has been on the specific reporting requirements that now apply to both domestic and foreign reporting companies (including corporations, limited liability companies, and partnerships). However, the CTA also has far reaching implications for the renewable energy industry and the players involved in tax equity partnerships.
Unless an exemption applies, reporting companies are required to submit certain information concerning the company and its beneficial ownership to the Financial Crimes Enforcement Network (“FinCen”) by the applicable initial reporting deadline set forth in the regulations. Additionally, reporting companies are required to submit updated information to FinCen following any relevant changes to the company or its beneficial owners. Whether or not a tax equity partnership will be required to submit and update such information will depend on whether it can qualify under one of the provided reporting exemptions.
The most important exemption for tax equity partnerships is the subsidiary exemption, which generally provides that subsidiaries whose ownership interests are owned or controlled by certain other exempt entities are also exempt from the CTA reporting requirements.[1] For example, if all the owners of a tax equity partnership are exempt from reporting requirements (through any one of the stated exemptions under the regulations), then the tax equity partnership itself is exempt from reporting under the CTA. However, the potential issue for tax equity partnerships is when one of the owners is not an exempt entity.
FinCen guidance provides that the subsidiary exemption only applies when the subsidiary is “100 percent owned or controlled by an exempt entity.”[2] Therefore, if the sponsor or investor member is not already an exempt entity under the rules, the tax equity partnership could be subject to beneficial ownership information reporting requirements. FinCen has not issued any further guidance concerning whether the subsidiary exemption would apply to an entity that is 100% controlled, but not wholly owned, by exempt entities. Until then, there are still questions of the applicability of the subsidiary exemption in tax entity partnerships of this nature.
[1] See FinCen’s Beneficial Ownership Information Frequently Asked Questions, L.3.
[2] Id., L.6.
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