The Corporate Transparency Act: Part 3 – Does the Corporate Transparency Act Apply to Your Nonprofit?
This article follows the articles titled “The Corporate Transparency Act: New Reporting Obligations Starting in 2024” and “The Corporate Transparency Act: Part 2”, which were previously posted to the Baker Manock & Jensen website. In this article, we address the following common question: “Must nonprofits public benefit corporations and mutual benefit corporations comply with the Corporate Transparency Act (CTA)?” Like all good legalistic answers, it depends.
There are different types of nonprofit corporations: Nonprofit public benefit corporations – commonly known as 501(c)(3)’s, which are organizations with charitable, educational, and religious purposes and Nonprofit mutual benefit corporations – commonly known as 501(c)(4),(5),(6)’s and so on, which are organizations that do not exist for charitable purposes and have fewer restrictions on advocacy.
In short, nonprofit corporations are generally not subject to the CTA’s requirements.
Interestingly, there is no specific exemption for nonprofit entities. However, there are 23 separate exemptions to the CTA, including a “tax exempt entity” exemption that will apply to most nonprofits. If a nonprofit is exempt from CTA reporting, it does not have to apply for exempt status, or file anything stating it is exempt.
This exemption makes sense because nonprofits are not designed for profit generation and often already operate with a high level of transparency, as they must comply with IRS regulations and state nonprofit reporting requirements.
However, if a nonprofit operates as a for-profit entity in certain respects or has complex ownership structures, there could be exceptions or additional considerations.
Waiting On Federal Exemption?
Moreover, nonprofit public benefit corporations that have formed with the state but have yet to receive their federal exemption under 501(c)(3) must file with the Financial Crimes Enforcement Network (“FinCEN”) under the CTA until they receive their federal exemption. Right now, the IRS is taking approximately 9-12 months to issue exemptions under 501(c)(3). The safest thing is for new nonprofit corporations to file under the CTA until they receive their exemption letters from the IRS. Once a nonprofit receives its federal exemption, it should make an updated filing with FinCEN stating that it is now an exempt entity.
Since there are so many exemptions under the CTA and other rules for all nonprofits, to ensure compliance with all relevant regulations, including the CTA, please contact your Baker Manock & Jensen attorney.
Stay Tuned for Additional Updates
Stay tuned for additional updates with respect to CTA reporting, as BMJ will continue to monitor ongoing litigation, as well as new guidance issued by FinCEN.
Disclaimer
This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
Authors
Kenneth Price
