Non-Profit Beneficial Ownership Information Reporting: Understanding the Requirements and Implications

The Corporate Transparency Act (CTA) introduces new compliance requirements designed to increase transparency and combat financial crimes such as money laundering. However, its application to the non-profit sector has sparked debate, as non-profits operate under a unique governance structure that does not include traditional beneficial owners.

The Nature of Non-Profits and Ownership

Unlike for-profit corporations, non-profits:

• Operate for the public good: Their mission is to serve community needs rather than generate profit.
• Lack traditional owners: They are managed by boards of directors and officers who act as stewards, not financial beneficiaries.

This structure means that the standard concept of beneficial ownership does not naturally apply to non-profits.

BOI Reporting Requirements under the CTA

The CTA mandates that “reporting companies” disclose information about their beneficial owners. A beneficial owner is defined as any individual who:

• Exercises substantial control over an entity, either directly or indirectly, or
• Owns at least 25% of the entity’s interests.

Since non-profits do not have financial stakeholders or traditional owners, they generally fall outside the intended scope of BOI reporting. However, the CTA does not explicitly exempt non-profits, resulting in ambiguity and potential compliance challenges.

The Argument Against Requiring Non-Profit BOI Reporting

There are several reasons why non-profits should not be subject to BOI reporting requirements:

• Absence of Traditional Beneficial Ownership: Non-profits do not have individuals who derive financial benefits from ownership.
• Existing Regulatory Oversight: They already adhere to transparency standards through mechanisms like IRS Form 990, which details financial operations and governance.
• Administrative Efficiency: Imposing BOI reporting would create redundant compliance tasks without furthering the CTA’s goal of combating financial crimes.

Documenting and Defending the Non-Profit Position

Even if non-profits conclude they are not subject to BOI reporting, it is essential to document and be ready to defend this stance. Best practices include:

• Reviewing the CTA’s definitions and guidance to support your interpretation.
• Consulting legal counsel or compliance experts for due diligence.
• Preparing an internal memo outlining why your organization does not qualify as a reporting company under the CTA.
• Maintaining records of any correspondence or legal opinions related to BOI compliance.

Conclusion

While the CTA’s BOI reporting requirements are designed to enhance transparency, they may not align with the non-profit sector’s structure. Current interpretations suggest non-profits should not be required to file BOI reports, but it remains essential for organizations to document their rationale and stay informed about regulatory updates.