Captive insurance companies are likely exempt from filing a Beneficial Ownership Information (BOI) Report under the insurance company exemption to the Corporate Transparency Act (CTA). Likewise, companies that are owned by captive insurance companies are likely exempt from filing a BOI Report under the subsidiary exemption. 

However, there is no “upward” exemption for parent companies of exempt entities and, therefore, holding companies that own captive insurance companies are likely not exempt from filing a BOI Report unless the holding company itself qualifies for another exemption.

CTA Overview 

The CTA, which went into effect on January 1, 2024, requires certain domestic entities and foreign entities operating in the United States to report beneficial ownership information to the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). 

There are two categories of reporting companies: “domestic reporting companies” and “foreign reporting companies.” 

1. A “domestic reporting company” means any corporation, limited liability company, or other similar entity created by the filing of a document with a secretary of state or any similar office.
2. A “foreign reporting company” means any corporation, limited liability company, or other similar entity that is formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Based on the definitions above, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships are required to file BOI Reports, considering that these entities are generally created by a filing with a secretary of state or similar office. However, sole proprietorships, general partnerships, and certain other types of trusts are not required to file BOI Reports, even if they register for a business license or similar permit that does not create the entity, because they are not created through a filing with a secretary of state or similar office.

The CTA imposes different filing deadlines for new and existing reporting companies: 

1. Reporting companies created or registered to do business in the United States before January 1, 2024 have until January 1, 2025 to file an initial BOI Report. 
2. Reporting companies created or registered in the United States on or after January 1, 2024, and before January 1, 2025, have 90 calendar days from the notice of the creation or registration to file an initial BOI Report. 
3. Reporting companies created or registered in the United States on or after January 1, 2025 will have 30 calendar days from the notice of the creation or registration to file an initial BOI Report. 

Reporting companies must also update previously filed BOI Reports if any information changes regarding the company itself or its beneficial owners and to correct any inaccuracies in previously filed BOI Reports.

Exemptions Under the CTA

There are 23 categories of exempt entities under the CTA, most of which apply to larger or more highly regulated entities. An entity that qualifies for one or more exemptions is not required to file a BOI Report. However, if a reporting company filed an initial BOI Report but then becomes exempt, it must file an updated BOI Report indicating its newly exempt status. 

The insurance company and subsidiary exemptions are likely the most widely applicable exemptions to companies established within a captive insurance structure.

Insurance Company Exemption

An entity qualifies for the insurance company exemption if it is an “insurance company” as defined in Section 2 of the Investment Company Act of 1940, which provides as follows:

“Insurance company” means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State; or any receiver or similar official or any liquidating agent for such a company, in his capacity as such. 

FinCEN has not indicated whether or to what extent certain captive insurance companies, which FinCEN has recognized can vary significantly in structure and size, might be able to claim the insurance company exemption (or any other exemption under the CTA). One commenter on the proposed FinCEN rules criticized the language in the insurance company exemption for potentially applying to “high-risk” captive insurance companies, which would enable those entities to avoid reporting their beneficial owners to FinCEN. The commenter specifically pointed to enforcement actions taken by the IRS against “abusive micro-captive” insurance arrangements. While FinCEN acknowledged these concerns, it emphasized that the scope of this exemption was specified by Congress in the CTA. 

At least for now, FinCEN adopted the final rule without any change to the language of the insurance company exemption. However, FinCEN did note that it may further consider captive insurance companies in connection with the study of exempt entities required under the CTA. 

A captive insurance company is within the scope of an “insurance company” as defined in Section 2 of the Investment Company Act of 1940 because (1) it is organized and operates as insurance company, (2) its primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and (3) it is subject to supervision by the insurance commissioner. Unless and until Congress or FinCEN provide further clarification or otherwise amend the language of the insurance company exemption, we believe the exemption applies to captive insurance companies in the same manner as traditional insurance companies. Accordingly, captive insurance companies are not required to file BOI Reports so long as they maintain their insurance operations and license. If a captive insurance company decommissions (i.e., surrenders its insurance license but continues to exist as a holding company), it would have 30 days from the effective date of its decommissioning to file an initial BOI Report.

Subsidiary Exemption

Subsidiaries of certain types of exempt entities may also be exempt from the BOI reporting requirements. To qualify, a subsidiary’s ownership interests must be fully, 100% owned or controlled, directly or indirectly, by one or more exempt entities. If an exempt entity controls some but not all of the ownership interests of the subsidiary, the subsidiary exemption does not apply. Put differently, an entity cannot claim the subsidiary exemption if a non-exempt entity owns or controls any portion of its ownership interests.

The insurance company exemption is one of the categories of exemptions that triggers the subsidiary exemption, assuming the other exemption criteria are met. Thus, an entity that is 100% owned or controlled by one or more exempt captive insurance companies would be exempt from the BOI reporting requirements under the subsidiary exemption. But an entity that is partially owned by a captive insurance company and partially owned by another non-exempt entity would not be exempt from the BOI reporting requirements (unless the entity itself qualifies for another exemption). 

Further, there is no “upward” exemption for parent companies of an exempt entity (for example, a holding company that owns only an exempt entity). Thus, a holding company formed to hold an interest in a captive insurance company must file a BOI Report under the CTA even though its subsidiary qualifies for the insurance company exemption (unless the holding company itself qualifies for another exemption). 

Captive insurance companies and their subsidiaries still should check with legal counsel on a case-by-case basis to make sure they are exempt from BOI Reporting requirements.

[View source.]