As we move through January 2025, nonprofits across the United States face new compliance requirements that could significantly impact their operations. While some deadlines have passed, it’s not too late for organizations to take action and ensure they meet their obligations.
Staying ahead of these changes is essential for maintaining regulatory compliance and protecting your organization’s reputation. Here are two key updates nonprofits need to know:
1. Beneficial Ownership Information (BOI) Reporting under the Corporate Transparency Act (CTA)
Starting January 1, 2025, certain entities, including some nonprofits, must comply with new reporting requirements under the Corporate Transparency Act (CTA). While many nonprofit organizations are exempt, it’s crucial to understand which entities must comply and prepare accordingly.
Exempt Nonprofits
Most nonprofit organizations are exempt from BOI reporting under the CTA. This includes:
- 501(c)(3) Charitable Organizations: Religious, educational, charitable, scientific, and literary organizations. Examples: Churches, universities, and nonprofits like the Red Cross.
- 501(c)(4) Social Welfare Organizations: Focused on promoting social welfare or local associations of employees. Examples: Local community associations or civic leagues.
- 501(c)(5) Labor and Agricultural Organizations: Includes labor unions and agricultural groups. Examples: Farm bureaus or labor associations.
- 501(c)(6) Business Leagues, Chambers of Commerce, and Trade Associations: Focused on improving business conditions for a specific industry or profession. Examples: Local chambers of commerce or industry trade associations.
- 501(c)(8) and 501(c)(10) Fraternal Societies: Includes groups organized for the benefit of members or charitable causes. Examples: Freemasons or the Elks Club.
- 501(c)(19) Veterans’ Organizations: Nonprofits for veterans and their families. Examples: American Legion posts.
Nonprofits That May Not Be Exempt
Certain types of nonprofits may not qualify for exemption and should verify their status, including:
- 501(c)(7) Social and Recreational Clubs: These organizations focus on pleasure, recreation, or other non-business purposes. Examples: Country clubs, hobby groups, or sports leagues.
Key Considerations
The exemption applies primarily to organizations that meet specific public benefit or tax-exempt criteria under Section 501(a) of the Internal Revenue Code. Nonprofits that are uncertain about their exemption status should consult legal or compliance experts to ensure they meet the necessary qualifications.
Current Legal Status
As of January 2025, the enforcement of the CTA’s BOI reporting requirements is temporarily halted due to a nationwide injunction issued by a federal court. The U.S. Department of the Treasury is appealing this decision. While reporting is currently voluntary, organizations should stay informed about legal developments to ensure timely compliance once the injunction is lifted.
Penalties for Non-Compliance
Organizations that fail to file accurate and timely reports face significant penalties, including daily fines of $500 per day (adjusted for inflation) and potential legal consequences. Current fines are approximately $591 per day.
Recommendations for Nonprofits
- Evaluate Exemption Status: Confirm whether your organization qualifies for an exemption under the CTA.
- Monitor Legal Developments: Stay updated on the status of the CTA and related legal proceedings.
- Prepare for Compliance: If your organization is not exempt, be ready to file BOI reports promptly when required.
This requirement aims to improve transparency and combat illicit activities such as money laundering and fraud. To ensure compliance, nonprofits should review their filing obligations and establish processes for accurate reporting.
2. California’s Charitable Fundraising Platform Regulations
California’s Assembly Bill 488 introduces new regulations for online charitable fundraising platforms and their partnering charities, with key provisions taking effect on January 1, 2025. These regulations are designed to enhance transparency and protect donors.
Key Requirements:
- Consent for Solicitations:
- Platforms must obtain written consent from recipient charities before using their names in solicitations.
2. Donation Receipts:
- Donors must receive receipts within five business days after making an online donation.
3. Timely Fund Transfers:
- Platforms are required to ensure donations are transmitted promptly to the intended charities.
Effective Dates to Note:
- March 26, 2024: Definitions of platform activities and solicitation types became effective.
- June 12, 2024: Platforms were required to register using Form PL-1.
- January 1, 2025: Consent and donor disclosure requirements take effect.
What If You Missed the Deadlines?
If a nonprofit or platform did not meet the deadlines in 2024, it’s important to take corrective action immediately to avoid potential penalties and restore compliance. Here’s what you should do:
- Contact the California Attorney General’s Office: Reach out to explain the oversight and seek guidance on how to rectify the situation.
- Engage Legal Counsel: Consult with a legal expert familiar with nonprofit regulations to ensure all future actions align with the law and mitigate potential risks.
- Act Quickly to Comply: Submit the required Form PL-1 registration if not already completed, and implement processes to meet the consent and disclosure requirements now.
- Establish Internal Systems: Create policies to ensure compliance deadlines are tracked and responsibilities assigned, preventing similar issues in the future.
Nonprofits that address these gaps proactively are more likely to avoid severe penalties and rebuild donor trust.
Nonprofits partnering with online fundraising platforms should review their agreements and ensure their platform partners are compliant with these new regulations. This will help safeguard donor trust and ensure smooth fundraising operations.
Prepare Your Organization for Compliance Success
Adapting to these regulatory updates is critical for nonprofit organizations to avoid penalties and maintain donor trust. Here are some steps you can take to prepare:
- Review Your Organization’s Compliance Obligations: Understand how these new rules apply to your nonprofit.
- Partner with Experts: Work with legal and compliance professionals to ensure adherence to state and federal regulations.
- Educate Your Team: Provide training to staff and board members on compliance responsibilities and the importance of transparency.
By staying informed and proactive, your nonprofit can navigate these changes with confidence and continue to focus on its mission. For more insights on charity compliance and solutions, stay tuned to our blog or contact us for personalized guidance.
