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When setting up a Limited Liability Company (LLC) or other company in a community property state, it’s important to understand the implications for Beneficial Ownership Information (BOI) reporting. Failing to include your spouse as a beneficial owner may lead to compliance issues.
Read on to understand the necessary steps and considerations to ensure that your entities comply with BOI reporting requirements.
Which States Are Community Property States?
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, most property acquired during the marriage is considered jointly owned by both spouses, regardless of who purchased it. This rule includes newly formed LLCs by a married individual.
The Importance of Including Your Spouse as a Beneficial Owner
The Corporate Transparency Act (CTA) requires entities, including LLCs, to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who directly or indirectly exercise substantial control over the entity or own at least 25% of the ownership interests.
For entities in community property states, both spouses typically have equal ownership over the property. Therefore, if one individual has 25% ownership interest then they must both be reported as beneficial owners. A newly issued FAQ from FinCEN confirmed that community property considerations should not be ignored. The FAQ reads:
“D. 18. If one spouse has an ownership interest in a reporting company, is the other spouse also considered a beneficial owner if the reporting company is created or registered in a community property state?
Possibly. Whether State community property laws affect a beneficial ownership determination will depend upon the specific consequences of applying applicable State law. If, applying community property State law, both spouses own or control at least 25 percent of the ownership interests of a reporting company, then both spouses should be reported to FinCEN as beneficial owners unless an exception applies.”
Given the above FinCEN guidance, neglecting to include your spouse as a beneficial owner can result in non-compliance with BOI reporting requirements, potentially leading to significant fines and penalties. It is highly recommended to consult with an attorney or CTA compliance expert if you are married and live in a community property state.
