Corporate Transparency Act for Tax-Exempt Entities

Navigating Corporate Transparency Act Compliance for Tax-Exempt Entities

This guide provides an overview of the Corporate Transparency Act (CTA) requirements for newly established tax-exempt entities, along with steps to help these organizations stay compliant.

Understanding the Corporate Transparency Act (CTA)

Starting January 1, 2024, the Corporate Transparency Act (CTA) mandates that many entities report beneficial ownership information (BOI) to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). This legislation aims to assist law enforcement in combating money laundering, tax fraud, and terrorism financing often conducted through anonymous entities.

Under the CTA, "reporting companies" are domestic entities created through filings with agencies like a secretary of state. These entities must submit company information (such as legal and trade names, taxpayer ID) and BOI details, including each beneficial owner’s name, birth date, address, and a unique identifier (like a passport or driver’s license number). The CTA defines a beneficial owner as anyone who:

Filing Deadlines for BOI Reports

Exemptions for Tax-Exempt Entities

Certain entities, including recognized tax-exempt organizations, are exempt from CTA reporting requirements under 31 C.F.R. § 1010.380(c)(2). Specifically, tax-exempt entities described in Section 501(c) of the Internal Revenue Code (IRC) and exempt under Section 501(a) are not classified as reporting companies.

For Newly Formed Charitable Entities

Entities seeking 501(c)(3) tax-exempt status are only exempt once they receive an official IRS tax determination letter. Pending approval, these entities may need to file BOI reports to stay within CTA guidelines. Here’s how:

1. File a Temporary BOI Report: To avoid CTA violations, newly formed entities should file a BOI report within the applicable 90-day (or 30-day) timeframe, even if they’re awaiting tax-exempt status.

2. Update Upon IRS Approval: Once the IRS issues the tax determination letter, the entity should submit an updated BOI report reflecting the new tax-exempt status, per FinCEN guidelines.

Loss of Tax-Exempt Status or Classification Changes

If an entity loses its tax-exempt status, the CTA requires these steps:

Whether through an IRS decision, court ruling, or other action, losing tax-exempt status does not alter these requirements. Maintaining or quickly reestablishing tax-exempt status can help avoid CTA reporting.

Subsidiary Filings

Subsidiaries wholly owned by exempt entities (like those described in 31 C.F.R. § 1010.380(c)(2)) are also CTA-exempt. However, only 100% controlled subsidiaries qualify. If a subsidiary loses its 100% ownership status, it becomes a reporting company unless it qualifies for another exemption, in which case it must file a BOI report with FinCEN within 30 days. If a subsidiary gains full ownership by an exempt entity, it can file an updated BOI report to claim exemption.

Non-Profit Organizations and CTA Compliance

Being a “non-profit” does not automatically qualify an organization for CTA exemption. Only organizations recognized under Section 501(c) and exempt under Section 501(a) of the IRC are eligible. Non-profits that don’t meet these criteria must still comply with CTA reporting requirements, even if formed under state non-profit statutes.

For questions or assistance with CTA compliance for your business or tax-exempt entity, reach out to Hopkins Centrich, PLLC. Our experienced business law attorneys are ready to guide your organization through these new regulations, ensuring full compliance.