The Corporate Transparency Act (CTA) aims to help detect and combat money laundering and terrorist finance, facilitate tracking money that has been sourced through criminal or terrorist activity, and safeguard national security and the U.S. financial system.
This act came into effect in January of 2024, and businesses that meet certain criteria are expected to file a Beneficial Ownership Information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025.
Table of contents
- Who is expected to file a report?
- Why are condos and HOAs expected to file a report?
- What would be included in the report?
- How is a report filed?
- Filing is simple, so what’s the problem?
- Pushback
- So, should your condo or HOA wait to file?
The end goal is to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal operations, however, the act has created new issues for condo and HOA communities.
Given the current circumstances, not every association intends to file a report in 2024, but others don’t want to take that risk due to the hefty penalties associated with failure to file.
Who is expected to file a report?
As of now, the Corporate Transparency Act applies to corporations, limited liability companies, and other similar entities created by the filing of a document with a secretary of state. There are 23 categories exempt from filing, but currently, most condo and HOA communities are not part of the exemption.
Many associations feel that this expectation is unfair and unreasonable, especially since FinCEN acknowledged that the charitable sector that operates domestically presents a low risk for money laundering. The Community Association Institute (CAI) shares the sentiments of these associations, and has been actively advocating for community associations to be exempt from the Act and the subsequent BOI reporting requirements.
Why are condos and HOAs expected to file a report?
Homeowners associations, condominium associations, and housing cooperatives are usually structured as state non-profit corporations and are therefore swept into the BOI reporting requirements. While the CTA exempts non-profits that hold an IRS non-profit tax determination, community associations don’t usually have a non-profit tax determination by the IRS.
A select group of associations, for example, an HOA that was not created by the filing of a document with a secretary of state or similar office, or an HOA designated as 501(c)(4) social welfare organization, may be exempt from filing a BOI report.
That being said, the consensus by community association lawyers is that the large majority of community associations incorporated at the state level will be impacted by the CTA, and will need to file a report by the end of 2024 if the law does not change.
Associations formed on or after January 1, 2024, but before January 1, 2025, will have 90 calendar days after receiving notice of the associations’ creation or registration to complete the initial report. This 90-day deadline runs from when the association receives notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation, whichever is earlier.
Associations created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice of their creation or registration to file their reports.
What would be included in the report?
The BOI would require the following information to be submitted:
- The business name of the association
- The legal name, birthdate, home address, and identifying number from a driver’s license, state ID, or passport of board members
- The legal name, birthdate, home address, and identifying number from a driver’s license, state ID, or passport of individuals who have “substantial control” over financial reporting for the association. It is currently unclear whether a community manager and/or management company would qualify as an individual with substantial control
- Any changes, corrections, or additions to the filing must occur within 30 days of when an association became aware of the change (ex. a board member is replaced)
How is a report filed?
BOI reports can be submitted electronically on the FinCEN website. Associations would also use this site when submitting a correction or update to a previous BOI report. It does not cost any money to file a report.
Filing is simple, so what’s the problem?
Several potential issues could impact condos and HOAs if associations are required to file a BOI report. These issues include privacy concerns, additional costs and increased difficulty in finding new board members.
Privacy concerns
Board members and anyone else who is considered to have “substantial control” over financial reporting will have to submit a lot of personal information to the FinCEN. While the agency will implement measures to protect personal data, it will be available to financial institutions, law enforcement, and certain federal agencies upon request.
Additional administrative and/or labor costs
Financial institutions were previously responsible for providing these types of reports, but now the CTA is shifting this burden to the entity. That means board members are going to have to do more work (as if they weren’t busy enough), and may need to file multiple reports in a single year if there are changes to the board.
If board members ask a manager or attorney to file on their behalf, then they will need to pay those professionals for their time.
Less desire to serve as a board member
Some associations already struggle with attracting members to serve on the board. This new requirement could make it even harder to find volunteers. Not only will they be expected to submit detailed personal information to the government, but the consequences for failing to properly submit the report on time are so significant that some people may not want to bother taking on that risk.
Unreasonable fines
How grave are the consequences for failing to submit a BOI report to the FinCEN on time? Associations could face civil penalties of $500 per day, and criminal penalties of up to $10,000, plus up to 24 months in prison.
Pushback
It’s not just community associations that believe they should be excluded from filing a BOI report under the CTA. The National Small Business Association filed a lawsuit, and on March 1, 2024, U.S. District Court Judge Liles C. Burke, for the Northern District of Alabama, Northeastern Division, wrote an opinion in which he declared the CTA to be unconstitutional.
The federal government appealed the decision on March 11. However, the court has directed the government to stop enforcement of the CTA against the plaintiffs (the National Small Business Association, its members, Isaac Winkles, and entities under their control).
It could take months or even years before the federal court system makes a final decision about the constitutionality of the CTA.
As mentioned earlier, the CAI is also advocating for associations across the U.S. It continues to encourage board members and industry professionals to reach out to their Senators and make a request to have the enforcement of the Corporate Transparency Act postponed.
It is also urging the confidentiality of the individual corporate filings of the BOI reporting through the rulemaking process.
The CAI is sharing updates as soon as they become available, and members should check the CAI website often as the issue matures.
So, should your condo or HOA wait to file?
No. Your HOA should file a report before 2025.
The CAI filed a lawsuit against the U.S. Department of the Treasury, Secretary Janet Yellen, and the director of the Financial Crimes Enforcement Network in September of 2024, but a preliminary injunction was not granted.
No decisions were reversed in 2024, however CAI’s advocacy efforts are continuing and its legal team is considering next steps.
We will update this article if anything changes.
