CORPORATE TRANSPARENCY ACT REPORTING REQUIRED FOR CERTAIN NONPROFIT ORGANIZATIONS COUNSELOR’S CORNER THE CORPORATE TRANSPARENCY ACT (CTA) REQUIRES most businesses to provide information regarding their ownership through an e-filing service provided by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA was enacted as an attempt to combat illicit activity by individuals and foreign organizations that have been able to capitalize on the anonymity available to entities in the United States. The disclosures required under the CTA include information such as the owners’ names, addresses, dates of birth, and additional identification numbers (e.g., driver’s license, FinCEN identifier, etc.). Established nonprofit organizations may have learned that 501(c) organizations are exempt from reporting under the CTA. However, the exception for 501(c) organizations may not apply to all organizations that consider themselves “nonprofits.” As a result, professional advisors working with nonprofits should ensure leadership of those organizations are made aware of what the CTA is and how they may be required to make reports to FinCEN in certain cases. Under 31 CFR 1010 of the CTA, nonprofit organizations, and entities related to them, are exempt from the CTA reporting requirements if the entity qualifies as one of the following types: 1. The entity is described in section 501(c) of the Internal Revenue Code of 1986 (determined without regard to section 508(a) of the Code) and exempt from tax under section 501(a) of the Code; 2. The entity is a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a) of the Code; 3. The entity is a section 4947(a) charitable trust; 4. The entity is a wholly owned subsidiary of one of the entity types listed above; or 5. The entity operates exclusively for the benefit of one of the entity types listed above by providing financial assistance to, or holding governance rights, over any such entity. Notably, the regulations require organizations to be recognized as tax-exempt under Section 501(a) and described in section 501(c) to meet the CTA exemption for 501(c) organizations. Many 501(c) organizations, including most 501(c)(3) organizations, are not recognized by the IRS as tax-exempt until they have filed an application with the IRS for a formal determination of tax-exempt status. FinCEN has publicly confirmed that they have declined to change the regulations to give nonprofits exemption when their tax-exempt status is pending or when their tax-exempt status has been revoked.1 As a result, many organizations may be nonprofits but still have obligations to file FinCEN reports because their status as a 501(c) organization is not yet recognized. The reporting requirements for an organization may also change if the organization’s tax-exempt status changes. Existing Nonprofit Organizations & Organizations Automatically Having 501(c) Status If the nonprofit organization is already in existence, has not received a revocation of its tax-exempt status, and has been granted recognition as a 501(c) entity prior to Jan. 1, 2024, the organization is currently exempt from the reporting requirements under the CTA. However, if the IRS revokes the organization’s tax-exempt status for any reason, the directors and officers should be aware the organization must satisfy the BY NICHOLAS W. O’BRIEN & KATE C. HUGHES, KOLEY JESSEN 20 Nebraska CPA
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