Demystifying The Corporate Transparency Act For Tax-Exempt Organizations – Part 2: CTA Compliance For Subsidiaries Of Tax-Exempt Organizations

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This article provides Corporate Transparency Act (CTA) guidance to tax-exempt organizations with subsidiaries. For a general overview of CTA compliance for nonprofit and tax-exempt organizations, please see Part 1.

United States Tax

Subsidiary Reporting Requirements Overview

Tax-exempt entities are exempt from the beneficial ownership information (BOI) reporting requirements of the CTA. A subsidiary of a tax-exempt entity may also be exempt from the BOI reporting requirements. If an entity is controlled or wholly owned, directly or indirectly by entities that are exempt from the BOI reporting requirements, then it too is exempt.

For example, a single member limited liability company wholly owned by a tax-exempt organization is exempt from the BOI reporting requirements. A joint venture or multimember limited liability company or partnership may also be exempt from the BOI reporting requirements if all of the members/partners are exempt from the CTA's BOI reporting requirements.¹

For multi-tiered ventures, the subsidiary may need to look up through each layer of its ownership/control in order to determine whether it is exempt from the CTA's reporting requirements. Even a single indirect owner or control party that is not exempt from such requirements makes the subsidiary a Reporting Company that is required to file a BOI report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of Treasury.

Reporting Deadlines

A domestic entity formed (or a foreign entity registered to do business) in the United States before January 1, 2024 must file a BOI report with FinCEN no later than January 1, 2025.

If the entity was formed or registered in 2024, the BOI report must be filed within 90 calendar days after receipt of notice or formation or registration.

Entities formed or registered in 2025 will only have 30 calendar days to file their BOI report with FinCEN.

You can access the form of the BOI report from FinCEN through their web-based application.

Penalties

The CTA provides for both civil penalties (currently $591 per day up to a maximum of $10,000) and criminal penalties of up to 2 years in jail for the willful failure to file a report or willfully providing false or fraudulent BOI.

Recommendations

For entities formed before January 1, 2024, tax-exempt organizations should examine the structure of their subsidiaries and joint ventures to determine whether each entity is a Reporting Company and, if so, gather the necessary BOI information to file the BOI report no later than January 1, 2025. Entities formed in 2024 must file a BOI report within 90 days of their formation and organizations should take their potential CTA compliance obligations into account when forming subsidiaries and structuring joint ventures.

Tax-exempt organizations should examine their joint venture agreements (i.e., operating or partnership agreements) to ensure that there are provisions which (1) require non-exempt members/partners to provide the required BOI report to the joint venture and timely update such information; and (2) require all members/partners to timely notify the joint venture of any change to their exemption from the CTA's BOI reporting requirements to ensure that the joint venture is able to timely file or update a required BOI report.

Footnote

1 In addition to tax-exempt entities, the following entities are also exempt from the CTA' s BOI reporting requirements: securities reporting issuers; governmental authorities; banks; credit unions; depository institution holding companies; brokers or dealers in securities; securities exchanges or clearing agencies; other Exchange Act registered entities; investment companies or investment advisors; insurance companies; state-licensed insurance producers; Commodity Exchange Act registered entities; accounting firms; public utilities; financial market utilities; and large operating companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.