Starting January 1, 2024, certain small entities conducting business in the United States are required to file reports naming their beneficial owners — the individuals who own or control the entity — with the Financial Crimes Enforcement Network (“FinCEN”) in the Department of Treasury. The new requirement is intended to reduce the risk of money laundering and other financial crimes.

Because of its timeliness, I borrowed this question from an informal list-serve of which I am a member and report (with permission) the response of Noel Fleming, an attorney at Archer & Greiner in Philadelphia, who is currently the chair of the Charitable Organizations Committee of the Pennsylvania Bar Association.  Here is his response:

“We discussed this recently at our last PBA Charitable Orgs Committee meeting.  The consensus was that since the CTA regulations provide for an exemption for entities “described in section 501(c) of the Code, without regard to section 508(a),” if an entity believes it is tax-exempt because it meets the criteria for exemption in 501(c), then it would not be considered a reporting company for purposes of CTA reporting, even if it hasn’t yet received a determination letter (to the extent it’s required to obtain one).

“Obviously, the language in the regulations is not as clear or extensive as we would like and there are likely different interpretations of how this should work in practice.  But, that was the general thinking of the group at our last meeting.”

This conclusion makes sense to me.  If the regulations exempt entities “described in section 501(c)” as opposed to those “recognized under section 501(c),” it seems that there is no requirement for recognition of tax-exempt status to claim the exemption from filing the information.  This properly recognizes the fact that there is no requirement that all nonprofits exempt under the 29 sections 501(c), particularly churches and 501(c)(4) social welfare organizations, have to obtain an IRS recognition of their exemption.  It would be an administrative nightmare and make no sense to require a FinCEN filing by a charity that would be retroactively exempted from the filing requirement once it received a formal recognition of exemption when other nonprofits that are not required to obtain a formal recognition of exemption are already exempt from filing.