In a bid to enhance corporate transparency and combat illegal financial activities, Congress enacted the Corporate Transparency Act (the “CTA”) in 2021. The CTA introduces new reporting requirements for certain U.S. companies, aiming to shed light on beneficial ownership details. The CTA requires these “reporting companies” to file a Beneficial Ownership Information report with the Financial Crimes Enforcement Network before the end of 2024.
Tax-exempt organizations are not required to file Beneficial Ownership Information reports. The reporting requirements under the CTA are not applicable to 501(c) and 527 organizations. Charitable trusts and split-interest trusts described in I.R.C. § 4947(a) are also exempted from reporting. Additionally, subsidiaries, including taxable subsidiaries, of tax-exempt entities, charitable trusts, and split-interest trusts are exempted from the reporting requirements under the CTA.
Tax-exempt organizations already operate in a strict regulatory environment. 1023s are publicly available, and the IRS maintains a public master file of tax-exempt organizations and an online search tool providing detailed information on tax-exempt organizations. Because exempt organizations already disclose much of the information required in a Beneficial Ownership Information report in their 990s and other filings, and such information is publicly available, Congress thought it superfluous to also require exempt organizations to file Beneficial Ownership Information reports.
The CTA marks a significant step forward in promoting transparency within the U.S. business landscape. By requiring reporting companies to disclose beneficial ownership information, the legislation aims to curb illicit financial activities and strengthen the government’s ability to police nefarious conduct. However, because tax-exempt organizations operate in a strict regulatory environment and much of their business information is publicly available, tax-exempt organizations are not bound by the reporting requirements mandated under CTA.
Kyler Mejia is an attorney (bar pending) with Caritas Law Group, P.C. Kyler advises nonprofit and socially responsible businesses on corporate, trademark, tax, and fundraising regulations nationwide as well as donors concerning major gifts. To schedule a consultation, call 602-456-0071 or email us through our contact form.