Should nonprofits file Beneficial Ownership Information (BOI) Reports under the Corporate Transparency Act (CTA)? Generally, no, based on their tax-exempt status; but possibly so – except due to pending litigation, and then only carefully so in light of emerging third-party deceptive marketing efforts that could jeopardize data privacy and other confidential information. Confused yet?
Pending Litigation
Amidst a flurry of litigation, the federal Financial Crimes Enforcement Network (FinCEN) announced on January 24, 2025:
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
In other words, reports may be filed, but waiting to submit any reports – pending resolution of pending litigation and hopefully further clarity – should not result in any penalties. This FinCEN announcement followed the day after the U.S. Supreme Court’s decision lifting a previous injunction and apparently reinstating the filing requirements. However, a separate universal injunction issued on January 7, 2025, in Smith v. United States Department of the Treasury remains in place, preventing enforcement for the time being.
The evolving CTA/BOI regulatory landscape underscores the need for organizations to remain vigilant. As legal aspects progress over time, BOI reporting requirements and penalties for noncompliance may resume, see modification, or be permanently reversed.
CTA/BOI Applicability to Tax-Exempt Nonprofits
As a key starting point for understanding CTA/BOI reporting requirements, remember that at Section 501(c)(3) and other tax-exempt nonprofits are generally exempt from CTA reporting requirements, along with their wholly owned or wholly controlled subsidiaries. But nonprofits may nevertheless encounter the CTA’s reach in a few limited scenarios, as explained in our firm’s related blog article. Such reportable scenarios may involve nonprofits engaged in joint ventures, taxable nonprofits, nonprofits that have either lost their tax-exempt status, or nonprofits not yet recognized as tax-exempt.
Deceptive and Misleading Tactics
Along with the teetering enforceability of the updated CTA, deceptive third-party companies are exploiting confusion by marketing unnecessary services as mandatory or official. Given the above considerations for the changing legal landscape and potential inclusion for nonprofit required reporting, solicitations by third-party companies can understandably make compliance requirements confusing.
As a prime example, the form presented here illustrates several red flags organizational leaders should recognize and avoid. This sample form provides a powerful reminder to vigilantly guard data privacy and confidentiality, as a priority for leaders, employees, and volunteers involved in nonprofit operations.
The following features of the sample form reveal common tactics designed to mislead organizations, such as the use of government-like logos, vague or ambiguous language implying mandatory compliance, and excessive service fees for filings that are either unnecessary or irrelevant.
1. Official-Looking Form Design
- The form mimics the layout of government documents, including an official-looking title (“Mandatory Beneficial Ownership Reporting”) and references to federal regulations. This is intended to create a false impression of being an official government communication.
- The use of terms like “Pursuant to the United States Corporate Transparency Act” and “enacted by Congress” further reinforces this false impression.
2. Payment Request to a Private Entity
- The form directs the user to send a payment (“Filing Fee: $119”) to a private entity, rather than directly to FinCEN or a government agency. Notably, BOI reporting directly to FinCEN is at no cost to the reporting entity. Authentic BOI reporting does not require payment to any third party and should be submitted directly to FinCEN through official channels.
3. Implied Legal Consequences
- The document highlights penalties for non-compliance (“up to $500 per day” or “up to $10,000 and/or up to 2 years of imprisonment”). While these are actual penalties for failing to comply with FinCEN’s reporting requirements, their inclusion on this form is misleading. It implies that failure to pay the company may trigger these penalties.
4. Request for Confidential Information
- The form asks for sensitive details such as names, addresses, and potentially proprietary information about beneficial owners. Providing such information to an unverified third party poses a significant privacy risk. Sharing this data may expose the organization to identity theft or data breaches.
Report Data with Care
Nonprofit leaders should understand that BOI reporting requirements, if applicable at all, can be completed directly without third-party intermediaries. Nonprofit leaders thus first should determine whether BOI applies to their organization. Additionally, they should be highly skeptical of any payment requests from private entities for BOI compliance. Legitimate government filings, if required, are typically submitted directly to the agency.
Protecting confidential information is paramount. Sensitive or proprietary information should never be provided to unsolicited third parties. Some additional safeguards include the following:
(1) Always confirm the legitimacy of any entity requesting such details.
(2) To build organizational resilience, educate staff and board members about recognizing fraudulent or misleading communications related to compliance.
(3) Make sure stakeholders know to escalate questionable documents to leadership or legal advisors.
4) If a deceptive form is encountered, consider reporting it to the Federal Trade Commission (FTC) or your state’s attorney general’s office. Informing FinCEN of such activities may help mitigate risks for other organizations.
Don’t Be Misled
Misleading forms like the one reviewed here are designed to exploit fear and uncertainty surrounding new regulatory requirements. Well informed nonprofit leaders can help protect their organizations from unnecessary expenses and risks. They can also safeguard nonprofits’ valuable resources and confidentiality by understanding the actual requirements of BOI reporting, keeping abreast of legal developments around the current injunction, and avoiding scams organized by deceptive third-party solicitors.
