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Federal Beneficial Ownership Reporting: A Guide for Nonprofits

Picture of the US Department of Treasury building

You may have heard about the newly introduced Federal Beneficial Ownership Reporting requirement.  The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury, started accepting these reports on January 1, 2024. 


Question 1: Do Nonprofits Need to File Reports?

It is important for nonprofits to be aware of these rules, but there's good news for organizations approved under section 501(c) of the Internal Revenue Code. Such nonprofits are granted an exemption from the Federal Beneficial Ownership Reporting requirements.


Most nonprofits are exempt from filing these reports. The following entities (amongst others) are exempt:

  1. Tax-exempt entity (any 501(c) tax-exempt corporate entity, 527 political organization, or charitable trust)

  2. Entity assisting a tax-exempt entity (entity that operates exclusively to provide financial assistance to (or holds governance rights over) a tax-exempt entity)

  3. Subsidiary of certain exempt entities (the entity’s ownership interests are controlled or wholly owned by a tax-exempt entity as described above)


Question 2: What's the Purpose of the Reporting Rules?

The Federal Beneficial Ownership Reporting Rules were introduced to promote transparency in corporate structures and to require certain entities to disclose information about the individuals who own or control them. The rules aim to prevent illicit financial activities such as money laundering and fraud by unveiling the true beneficiaries behind corporate entities.


Question 3: Why are 501(c) Nonprofits Exempt from Reporting?

The exemption is rooted in the understanding that these organizations serve the public interest and their finances are subject to rigorous scrutiny through other regulatory mechanisms. By exempting 501(c) nonprofits, regulators acknowledge the stringent reporting requirements already imposed on these organizations, ensuring transparency while respecting their unique roles in society, and they acknowledge the unique nature and purpose of 501(c) nonprofits, which typically operate for charitable, educational, religious, or other exempt purposes. While transparency is vital, recognizing the distinct status of nonprofits ensures that they can continue their valuable work without unnecessary administrative burdens.


Question 4: Are There Other Key Considerations for Nonprofits?

While 501(c) nonprofits enjoy an exemption from the Federal Beneficial Ownership Reporting Rules, it's essential for organizations to stay informed about other reporting requirements that may apply to them. Maintaining compliance with tax filings, charitable solicitation registrations, financial reporting, and other regulatory obligations is crucial for preserving the organization's good standing and reputation.  If you are a Minnesota nonprofit and have questions about these obligations, please reach out to us.  We are dedicated to helping you stay on the right path!

 



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