The Corporate Transparency Act (the “CTA”) became effective on Jan. 1. The CTA’s goal is to reduce money laundering and other financial crimes by requiring the reporting of ownership and control information of businesses operating in the United States. Following is a summary of the impact of the CTA on charities and tax-exempt entities.

Nonprofits are exempt from CTA beneficial ownership information reporting requirements. This exclusion applies to all Section 501(c) tax-exempt entities and charitable trusts. If a charity loses its tax-exempt status with the IRS, it has a 180-day grace period during which it is still exempt from CTA filing requirements. If it regains its tax-exempt status in that 180-day period, it will remain CTA-exempt. However, if it does not regain its tax-exempt status in that 180-day grace period, the entity has 30 days to file its beneficial ownership report.

Entities formed by a nonprofit are likely CTA-exempt as well. A single-member LLC or other entity that is controlled or wholly owned, either directly or indirectly, by one or more charities or tax-exempt entities is exempt from the CTA reporting requirement. This subsidiary exemption applies to both for-profit and nonprofit entities owned solely by one or more charities or tax-exempt organizations.

However, reporting is required if the charity is not the sole owner of a business entity (for example, if the charity owns 50% while the other 50% is owned by private, non-CTA-exempt individuals or entities). In these instances, the entity (not the charity or tax-exempt entity) will have to file a beneficial ownership report since the subsidiary is not controlled or owned entirely by CTA-exempt individuals. In this case, the entity will have to report the name of the charity or tax-exempt entity as an owner on its beneficial ownership report. Please note that the names of the individual directors/members/shareholders of the charity or tax-exempt entity need not be reported.

In summation, charities and tax-exempt entities are exempt from CTA reporting requirements. An entity not owned entirely by one or more charities and tax-exempt entities must report the charity and/or tax-exempt entity as a beneficial owner but will not report the names of individual directors/members/shareholders of the charity or tax-exempt entity.