Is My Nonprofit Required to File a CTA BOI with FINCEN?

Update #3: As of January 23, 2025, the Supreme Court has effectively reinstated BOI filing requirements. If you are required to file, it is likely that the reporting requirements will remain in place while the case winds its way through the courts.

Update #2: As of December 26, 2024, the Fifth Circuit Court of Appeals has again blocked the reporting requirement.

Update: As of December 23, 2024, the Fifth Cicruit Court of Appeals has reinstated the reporting requirement by dissolving the stay entered by the district court in Texas.

Note: A Federal Court has enjoined FinCEN from requiring BOI reports until further notice. Keep your eye on that case or check in with an attorney for advice on what you should do.

Introduction

The Corporate Transparency Act (CTA) created a requirement for "reporting companies" to report "benefical owner information" (BOI) to the Financial Crimes Information Center (FinCEN). The penalities for failing to comply can be severe: a fine of $500 per day (adjusted for inflation) for failing to report, and up to two years in prison for knowingly making a false report. The law specifically exempts many nonprofit organizations, but it is not clear how FinCEN will treat 501(c)(3)s with pending applications for recognition of tax-exemption. Here is what you need to know.

What the Corporate Transparency Act Says In General

The Corporate Transparency Act is a law that takes up about 22 pages. In that law, Congress said that they think they need to know more information about the people who own and control small corporations and limited liability companies for reasons including law enforcement, national security, money laundering, and other reasons. The law creates "beneficial ownership information reporting requirements." Specifically, each "reporting company" must submit "beneficial ownership information."

What is a "reporting company" under the Corporate Transparency Act? First, it must be a "corporation, limited liability company, or other similar entity that is" either "created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian Tribe," or an entity "formed under the law of a foreign country and registered to do business in the United States" by filing such a document with a state or tribe. Second, it must not be exempt from filing under the statute. There are 23 categories of organizations that would otherwise be a "reporting company" but which are exempt by statute. Many of them are the types of companies that are already heavily regulated by federal or state governments. Examples include corporations whose stock is publicly traded on the stock exchanges, or insurance companies, or banks.

Reporting companies are required to report the name, date of birth, address, and unique identifying number for every "beneficial owner."

A "beneficial owner" is any individual who "directly or indirectly ... exercises substantial control over the entity [or] owns or controls not less than 25 percent of the ownership interest of the entity." It does not include "an individual acting solely as an employee of [the entity] and whose control over or economic benefit from such entity is derived solely from the employment status of such person." 

What the Corporate Transparency Act Says About Nonprofits

One of the types of corporations that are exempt from reporting are "any ... organization that is described in section 501(c) of the Internal Revenue Code ... and exempt from tax under section 501(a) of such code."

What the Regulation Says About Nonprofits

As with most statutes, Congress also authorized a government agency (the Secretary of the Treasury acting through FinCEN) to create regulations to implement the law. Those regulations provide more detail on what reporting companies are required to do.

First, the Treasury Department clarified the time to file. Any reporting company that existed prior to January 1, 2024, had until January 1, 2025, to file the beneficial ownership information report. Any reporting company that came into existence starting on January 1, 2024, was required to file the report within 30 calendar days of either the date that it received notice that the secretary of state had accepted its creation or the date that the existence was available in a public record, whichever is earlier. For example, if a company filed articles of incorporation with a state on January 1, 2024, and the secretary of state put the accepted and filed copies on its website on January 8, 2024, and then the corporation received a mailed copy of the accepted and filed articles on January 15, 2024, the 30-day clock to file the beneficial ownership information began to run on January 8. 

Second, the Treasury Department clarified what it means to have substantial control over a reporting company. Those include:

• A person who serves as "a senior officer" of the company. A senior officer includes the president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer regardless of official title, who serves a similar function.

• A person who has the authority over appointment or removal of senior officers or a majority of the board.

• A person who directs, determines, or has "substantial influence over" important decisions of the reporting company, such as major expenditures, the nature of the business of the company, compensation of senior officers, terms of significant contracts, or amendment of the bylaws.

• A person who has "any other form of substantial control over the reporting company."

Third, the Treasury Department simply repeated, verbatim, the statute's exclusion for nonprofits: they must be "described in section 501(c) [and] exempt from tax under section 501(a)."

What this Means In Practice

Putting all of this together, the statute and the regulations exempt certain tax-exempt organizations from the BOI reporting requirements of the Corporate Transparency Act in a number of ways.

First, in order to be a reporting company, the nonprofit must be the type that comes into existence through the filing of a document with the secretary of state. Unincorporated associations (if they can be formed without filing a document in a particular state) are not a "reporting company." 

Second, most existing tax-exempt organizations are exempt from filing BOI information. For a tax-exempt corporation that already has a determination letter from the IRS, they are both "described" in section 501(c) and "exempt from taxation" under Section 501(a).

But what about organizations that do not have a determination letter? This gets a bit more tricky. Assuming that a nonprofit is the type of organization "described" in section 501(c), the question becomes whether that organization is "exempt from taxation." For many types of nonprofits, the answer is an easy yes. The IRS has long taken the position that almost all categories of section 501(c) organizations can "self-declare" that they are tax exempt and do not need to apply for exemption. Only section 501(c)(3), 501(c)(9) and 501(c)(17) need to apply for exemption. If an organization falls into any other section of 501(c), they are "exempt from taxation" under section 501(a) as soon as they self-declare and operate within their approrpiate section.

What about section 501(c)(3) organizations? It's not as obvious of an answer. There are some 501(c)(3)s that are exempt without a determination letter: churches and organizations other than private foundations that "normally have annual gross receipts of less than $5,000." For those types of nonprofits, they do not need a determination letter, either, and can fairly say that they are exempt from taxation to qualifiy for the BOI exemption.

That leaves only one significant category: for section 501(c)(3)s that are required to get a determination letter, are they "exempt from taxation" during the time that the application is pending? When they were working on the regulations, the Treasury Department received comments from people in the nonprofit world asking them to write the regulations in a way to make explicitly clear that the exemption should cover "entities that had applied to the IRS for tax-exempt status but were awaiting a determination." After acknowledging those comments, the Treasury Department simply stated that they would adopt the proposed regulations without change, which "is almost identical to the statutory language [and] sufficiently identifies the tax-exempt entities that are covered by the exemption." That doesn't really help. Does that mean that the Treasury Department thinks that the current regulation does exclude 501(c)(3)s with pending applications, and that the regulation does not need clarification? Or does that mean that the Treasury Department thinks that the current regulation does not exempt those 501(c)(3)s, and they do not want to expand the regulation to cover them? It's not obvious. It is worth noting that the next paragraphs discuss not wanting to expand the exemption beyond what Congress intended, and talks about the legislative history and concerns that bad actors can abuse the 501(c)(3) structure. That would seem to provide one bit of context to make it appear that the final regulation is meant to be read as not exempting 501(c)(3)s with pending Form 1023s awaiting a determination letter.

[As a note: the author of this bulletin has submitted a request to FinCEN in June 2024 asking them explicitly whether they consider a 501(c)(3) with a pending tax-exempt application to be in violation of the CTA if they do not report. FinCEN has not answered that request for clarification.]

Conclusion

Existing nonprofits, including 501(c)(3)s with determination letters, churches, and 501(c)(3)s with normal receipts less than $5,000 can safely decline to provide a BOI report to FINCEN. However if your organization is the type of 501(c) that needs a determination letter -- that is: all private foundations, all charities with receipts greater than $5,000, all 501(c)(9)s and all 501(c)(17)s -- then you have to decide whether the regulation applies to you or not. There is context in the regulations to indicate that FinCEN might well consider you to owe $500 per day in fines for failing to report during the time after 30 days and before you are determined to be exempt by the IRS.