Zenas’ Brief – February 2025

Corporate Transparency Act

We are continuing with our employment law series by briefly discussing the Corporate Transparency Act (“CTA”) and its effect on churches.

In 2021, the federal government enacted the CTA. The act aimed to combat illegal activity (e.g., tax fraud, money laundering, and financing for terrorism) by obtaining more ownership information from specific businesses in the United States. In other words, the federal government was concerned bad actors were creating American shell companies (usually from LLCs or S-Corporations) to conduct illegal activities. The only way the federal government could think to stop these bad actors was to gather information about the business owners, their trademarks, tax identification numbers, and the State where the company was formed or registered. Thus, businesses must submit Beneficial Ownership Information (“BOI”) to the federal Financial Crimes Enforcement Network containing the above information. The law went into effect on January 1, 2024, and if a company fails to report, the penalty could be a civil fine of $591.00 per day and/or two years in prison with a criminal fine of up to $10,000.00.

The CTA was challenged in federal court, and the federal government is making the submission of the BOI voluntary until litigation is resolved. Regardless of the outcome of the legal challenges, churches should not be concerned about the CTA or BOI because the CTA do not apply to them.

In drafting the CTA, the federal government made sure to add exemptions to the law. One exemption to the CTA is corporations recognized as 501(c)(3) entities. Since all churches are automatically considered tax-exempt under 501(c)(3), the CTA does not apply to churches. Moreover, if a church has a tax-exempt letter from the IRS or is under the UISBC’s group exemption, then the church meets the exemption, and the CTA will not apply. In sum, churches do not need to be concerned about the CTA and BOI.

If you have any questions, feel free to contact your UISBC Legal Team.