On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction against the Corporate Transparency Act ("CTA"), a reporting regime enacted in 2021 to combat money laundering and other financial crimes. The Department of Justice ("DOJ") has appealed this decision to the Fifth Circuit Court of Appeals. For now, however, the preliminary injunction applies nationwide, pausing the CTA's effectiveness and enforcement. The CTA requires certain organizations to report information about their "beneficial owners"—the individuals who substantially own or control them—to the Treasury Department's Financial Crimes Enforcement Network ("FinCEN"). If a covered organization was established before 2024, the deadline to report this beneficial ownership information ("BOI"), on paper, is January 1, 2025. However, the court's order, which calls the statute "likely unconstitutional" and "quasi-Orwellian," has stayed that deadline at least until the Fifth Circuit rules on the DOJ's appeal. FinCEN has confirmed that it will not require reporting while the injunction remains in effect.
With the CTA back in the news, nonprofit leaders may be wondering if this law applies to their organizations. If the CTA survives judicial scrutiny, most tax-exempt organizations ordinarily will not need to file BOI reports. Tax-exempt organizations described in section 501(c) are generally exempt from the CTA. The exemption also applies to political organizations described in section 527(e)(1) and charitable and split-interest trusts described in section 4947(a)(1) and (2). However, any for-profit and other non-exempt organizations related to the tax-exempt organization that are not directly owned or controlled by the tax-exempt organization ordinarily will be subject to the BOI filing requirement unless those organizations "exclusively support" the tax-exempt organization.
Despite the exemption for section 501(c) organizations, there is uncertainty how the CTA applies to tax-exempt organizations in other circumstances. For example, FinCEN's statements about the application of the exemption to section 501(c)(3) organizations awaiting recognition from the Internal Revenue Service have created uncertainty about whether such organizations can rely on the filing exemption. Additionally, it is unclear whether section 501(c) organizations that have had their exempt status automatically revoked will need to file BOI reports, because the CTA only provides a 180-day grace period to obtain reinstatement, which is a shorter time period than the time period typically required for the Internal Revenue Service to process an application for reinstatement. Until FinCEN provides further guidance, nonprofit organizations in either of these positions should monitor the Texas case's progress. If the injunction is lifted, these organizations may benefit from seeking legal advice.
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