Not-for-Profits and the CTA

Recently, there has been extensive reporting about the federal Corporate Transparency Act, or the “CTA,” the stated objective of which is to enhance transparency in entity structure and ownership in order to combat money laundering, tax fraud, and misconduct through business structures. The CTA, which became effective as of January 1, 2024, requires certain business entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network, more commonly known as FinCEN, of the U.S. Department of Treasury.

Organizations that are described in Section 501(c) and recognized as exempt from federal income tax under Section 501(a) of the Code are exempt from reporting under the CTA, as are certain political organizations, charitable trusts, split-interest trusts, and entities wholly-owned or controlled by any of the foregoing.

However, not-for-profits whose tax exemption applications are pending with the IRS—i.e. any newly-formed not-for-profits—are not exempt from CTA filing requirements. Entities formed after January 1, 2024 have 90 days from the date of formation to file an initial CTA report with information about their senior officers and other individuals in positions of control. Additionally, a 501(c) organization that has its exemption revoked, for example, for failing to file for three consecutive years, will have to file a CTA report if it does not have its exemption reinstated within 180 days.

Fines of $500 per day can be levied for failure to comply with the reporting requirements of the CTA. Thus, those involved in not-for-profits, especially those in the early stages of formation, should be attentive to the CTA’s requirements and should consult with professional advisors to confirm either their entity’s exempt status of compliance with CTA requirements.  We will keep you abreast of any updates that follow.