In the realm of financial transparency and regulation, the Corporate Transparency Act (“CTA“) stands as a significant milestone. Enacted to counter money laundering, terrorism financing, and other financial crimes, this legislation introduces a comprehensive set of rules to enhance corporate accountability. While its primary targets are corporations and limited liability companies, the implications of the CTA extend to tax-exempt organizations as well. In this blog, we will delve into the key provisions of the Corporate Transparency Act and explore its potential impact on tax-exempt organizations.
The Corporate Transparency Act mandates the collection of beneficial ownership information from qualifying corporations and limited liability companies. Beneficial ownership refers to the individuals who ultimately own or control these entities, including those who hold at least 25% ownership interest or exercise significant control over the entity. Under this act, these beneficial ownership details are reported to the Financial Crimes Enforcement Network (“FinCEN“), a bureau of the U.S. Department of the Treasury. The collected data is maintained in a non-public registry, accessible only to authorized governmental bodies and financial institutions for specified purposes, such as due diligence.
Impact on Tax-Exempt Organizations
While the CTA primarily targets for-profit entities, its implications for tax-exempt organizations should not be overlooked. Tax-exempt organizations are generally created as corporations by filing with the Secretary of State in their jurisdiction. Therefore, these entities may find themselves subject to the reporting requirements outlined in the CTA. However, tax-exempt entities that maintain and active 501(c)(3) status, are political organizations under Section 527(e)(1), and are charitable or split-interest trusts are excused from the requirements.
All other types of nonprofits such as Civic Leagues, Social Welfare Organizations, Chambers of Commerce, Real Estate Boards, Social and Recreational Clubs, and Fraternal Beneficiary Societies and Associations will have to understand the reporting requirements going forward. Effective January 1, 2024, these organizations will be required to file reports regarding their beneficial owners. Beneficial owners either exercise substantial control over the organization, or own or control at least 25% of the organization’s ownership interests.
Reporting organization will need to report
- The legal name of the entity;
- Any trade name of the entity;
- The address of the principal place of business;
- The State of formation; and
- The taxpayer identification number (TIN) or employer identification number (EIN).
Reporting organization must provide all of the following information regarding beneficial owners and applicants:
- Full legal name;
- Date of Birth;
- Address (business or residential)
- A unique identifying number (driver’s license number or passport number); and
- A scanned image of the identification document.
In summary, nonprofits with an active 501(c)(3) status will not need to worry about new reporting requirements under the Corporate Transparency Act. All other nonprofits should consider whether it would be appropriate to obtain 501(c)(3) status, or prepare to start reporting beneficial owner information in 2024.
This blog is for educational purposes only and does not constitute legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. Speak to a licensed attorney if you need help or advice navigating the legal issues the Corporate Transparency Act. If you have any questions or would like to learn more, please contact George Ptasinski at george@apexlg.com or visit our website and blog. You might also like to read, “Applying for 501(c)(3) Tax-Exempt Status Goes Entirely Online,” “2022 Annual Report Requirements for Nonprofits under RCW 24A.03,” and “Tax Obligations and Filing Requirements of Nonprofit Organizations.”