Corporate Transparency Act for Homeowners’ and Condominium Associations

On January 1, 2024, the Corporate Transparency Act (CTA) went into effect. Intended to help combat national security threats such as money laundering and terrorism, this new legislation requires corporate entities to report certain information to the U.S. Financial Crimes Enforcement Network (FinCEN). It impacts millions of U.S. and non-U.S. entities alike—including several hundred thousand homeowners’ and condominium associations.

 

That’s right, volunteer boards and property managers—this is happening. We have discussed the CTA in this newsletter before, but with the release of clearer guidelines applicable to community associations, my team and I think it necessary to provide this information, as the deadlines are coming sooner than we would like. So, here is a brief, updated summary of how the CTA applies to HOAs and condo associations, and what associations must do to comply with the new law and avoid potentially significant penalties.

 

According to guidance from FinCEN, if an HOA or condominium association meets the CTA’s requirements for a “reporting company” and does not qualify for any exemptions, it is required to identify and report its “beneficial owners” to FinCEN. An association created before January 1, 2024 has until January 1, 2025 to file. Entities born after January 1, 2024 have just 30 days to comply.

 

WHEN IS A COMMUNITY ASSOCIATION A “REPORTING COMPANY?”

 

Lawyers have a favorite phrase which answers this question: It depends—but likely not. There is no separate standard for community associations; if an association meets all the standard CTA criteria, it is a reporting company like any other. A reporting company is any corporation, LLC, or similar entity, which was either (1) created in the United States by filing with a Secretary of state or similar office, or (2) authorized to do business in the United States, if it was created in a foreign country.

 

There are, however, 23 exceptions to the CTA’s reporting requirement, which might exempt an entity from the reporting requirement, as well as the exclusion of large operating companies  (for example, those with more than $5 million in gross annual sales). The most likely exemption to affect a community association is if the association has applied for and received tax exemption under Section 501(c). However, most associations may do well to assume that they fall under the reporting requirement.

 

There was an interesting moment earlier in the year—at the deciding of National Small Business United et al. v. U.S. Department of the Treasury et al., No. 24-10736 (11th Cir. 2024)—when the Eleventh Circuit Court of Appeals declared the CTA to be unconstitutional as it applied in that case. We lawyers will be watching closely for new developments of this type. However, the court’s verdict in National Small Business United only applies to the parties to that case.  As of this moment, everyone else who falls under the CTA as written, should consider the CTA to be lawful and applicable to them.

 

 

WHO ARE THE “BENEFICIAL OWNERS?

 

FinCEN expects that every reporting community association will report at least one beneficial owner. Beneficial owners exert substantial control or own at least 25% of an entity.  FinCEN considers all of the following to fall under these criteria:

 

  • Senior officers (i.e. CEO, CFO, general counsel);
  • An individual with the power to nominate or remove officers or a majority of directors;
  • An important decision-maker; or
  • An individual with any other form of substantial authority over the HOA (i.e., voting rights or rights associated with financing)

 

Whether a particular person—be they a board member, property  manager, officer, etc.—is a beneficial owner is a matter to be considered by the association on an individual basis. However, it seems likely that all board members, at the very least, are beneficial owners required to report under the CTA.

 

HOW TO COMPLY WITH THE CTA

 

Reporting companies must provide beneficial owner information by submitting an initial Beneficial Ownership Information Report. A completed BOI Report will include the following information for each beneficial owner: their full legal name, current address, and a copy of their government-issued ID (i.e. driver’s license). Additionally, entities created after January 1 of this year must report information about their company applicants—the ones who filed to organize the entity. The report must also include information about the entity itself, including: its legal name and any trade names, its principal place of business, the state of its creation or where it was first authorized to do business, and its tax ID number or EIN.

 

Reporting companies must provide updated filings within 30 days of any change to the information provided—and they do mean ANY change. If a board member resigns or is newly elected, if any beneficial owner moves their address or changes their name, there needs to be an updated filing with FinCEN within 30 days of any such change.

 

The prescribed penalties for failure to report, or for reporting incorrect information, may be steep. The CTA authorizes both civil and criminal penalties of up to $500 for each day that a violation has not been remedied, and a fine of up to $10,000 and/or imprisonment for up to 2 years. While FinCEN has stated that it will likely not punish inadvertent mistakes, we by no means advise any association to be lax in their duty to report promptly and accurately.

 

THE TAKEAWAYS

 

  1. The CTA applies to thousands of community associations across the country—most likely, it applies to yours as well.

 

  1. Under the CTA, reporting companies have until the beginning of next year to report their beneficial ownership information to FinCEN; entities created this year have until 30 days from their date of incorporation.

 

  1. A reporting company is any entity formally organized in or authorized to do business in the United States, excluding large operating companies and those falling under an exemption. Most HOAs and condo associations are likely not exempt.

 

  1. A beneficial owner is any individual who owns or exerts substantial control over the association; this likely includes board members and possibly some property managers or employees of the association.

 

  1. Any change in beneficial owner information must be reported to FinCEN within 30 days, including change of beneficial owners or their addresses.

 

  1. The law prescribes steep penalties for noncompliance.

 

Still have questions? Looking for more guidance on whether your association falls under the auspices of the CTA, or how to properly report? As it happens, we have one of the few licensed Ohio residential real property law experts here on our team. New laws can really shake things up, which is why Eques’ community association team is here to assist!

 

Please stay tuned for upcoming seminars concerning the Corporate Transparency Act, and how our HOA team at EQUES® Law Group can assist in the needed reporting requirements.

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