Are Tax Exempt Entities Exempt From The Corporate Transparency Act?

There are 23 separate exemptions from the CTA's beneficial ownership reporting requirement. The exemptions are listed in order in FinCEN's Final Rule at 31 CFR 1010.380 and take effect on January 1, 2024.

CTA Exemptions Generally

In general, the CTA exempts companies that already report their beneficial ownership to the U.S. government under a separate legal framework. FinCEN's Final Rule addresses each exemption separately in subsection 1010.380(c)(2).

Exemption Number 19 - Tax exempt entities

Subsection 1010.380(c)(2)(xix) of the Final Rule exempts:

(xix) Tax-exempt entity. Any entity that is:

(A) An organization that is described in section 501(c) of the Internal Revenue Code of 1986 (Code) (determined without regard to section 508(a) of the Code) and exempt from tax under section 501(a) of the Code, except that in the case of any such organization that ceases to be described in section 501(c) and exempt from tax under section 501(a), such organization shall be considered to continue to be described in this paragraph (c)(1)(xix)(A) for the 180-day period beginning on the date of the loss of such tax-exempt status;

(B) A political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a) of the Code; or

The exemption has three sub parts:

Tax-Exempt Entities under IRC Section 501(c)

The first applies to an organization that is (a) described under Section 501(c) of the Internal Revenue Code and that is (b) exempt from tax under Section 501(a) of the Code.

Section 501(c) of the Internal Revenue Code sets forth a long list of entities, each of which is exempt from federal income tax by virtue of Section 501(a). (Section 501(a) also exempts from taxation several other categories of entities, beyond those covered by Section 501(c).

The parenthetical, "determined without regard to Section 508(a) of the Code," refers to rules governing private foundations. Private foundations are exempt from federal income tax (under Section 501(a)), but are not entitled to receive tax-deductible contributions (by virtue of Section 508(d)(2). As a consequence, a tax exempt entity under Section 501(c)(3) is exempt from the reporting requirements of the Corporate Transparency Act, even if it is a private foundation.

Importantly, an entity that is exempt because it is a tax-exempt entity under Section 501(c) of the Internal Revenue Code that cease to qualify under that code section will continue to maintain its exempt status for 180 days after it loses its tax-exempt status.

This rule will obligate such an entity to prepare and file its first beneficial ownership report with FinCEN not more than 180 days after the entity loses its tax-exempt status.

Tax-Exempt Political Organizations under IRC Section 527(e)(1)

The second sub-part of the exemption applies to (a) a political organization, as defined in section 527(e)(1) of the Internal Revenue Code, that is (b) exempt from tax under section 527(a) of the Code.

Section 527(e)(1) defines "political organization" as "a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function."

Section 527(e)(2) defines "exempt function" as "the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. Such term includes the making of expenditures relating to an office described in the preceding sentence which, if incurred by the individual, would be allowable as a deduction under section 162(a)."

Entities that are a "political organization" as defined in Section 527(e)(1) are exempt from income tax under Section 527(a).

Tax-Exempt Trusts Under IRC Section 4947(a)

The third sub-part of the exemption applies to a trust described in paragraph (1) or (2) of section 4947(a) of the Internal Revenue Code.

Section 4947(a) exempts from federal income tax both "charitable trusts" and "split-interest trusts" as follows:

(1)Charitable trusts. For purposes of part II of subchapter F of chapter 1 (other than section 508(a), (b), and (c)) and for purposes of this chapter, a trust which is not exempt from taxation under section 501(a), all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B), and for which a deduction was allowed under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 (or the corresponding provisions of prior law), shall be treated as an organization described in section 501(c)(3). For purposes of section 509(a)(3)(A), such a trust shall be treated as if organized on the day on which it first becomes subject to this paragraph.

(2)Split-interest trusts. In the case of a trust which is not exempt from tax under section 501(a), not all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B), and which has amounts in trust for which a deduction was allowed under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, section 507 (relating to termination of private foundation status), section 508(e) (relating to governing instruments) to the extent applicable to a trust described in this paragraph, section 4941 (relating to taxes on self-dealing), section 4943 (relating to taxes on excess business holdings) except as provided in subsection (b)(3), section 4944 (relating to investments which jeopardize charitable purpose) except as provided in subsection (b)(3), and section 4945 (relating to taxes on taxable expenditures) shall apply as if such trust were a private foundation. This paragraph shall not apply with respect to—

(A) any amounts payable under the terms of such trust to income beneficiaries, unless a deduction was allowed under section 170(f)(2)(B), 2055(e)(2)(B), or 2522(c)(2)(B),

(B) any amounts in trust other than amounts for which a deduction was allowed under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, if such other amounts are segregated from amounts for which no deduction was allowable, or