What is the Corporate Transparency Act and How Does it Impact HOA’s?

What is the Corporate Transparency Act and How Does it Impact HOA’s?

What is the “Corporate Transparency Act”?

The Corporate Transparency Act (CTA) that Congress recently passed is aimed at people who use LLC’s and corporations as “shell” companies to hide assets. A Federal Register document defines its purpose  to “prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity, while minimizing the burden on entities doing business in the United States.” The primary aim of this law is to aid law enforcement in identifying, monitoring, and reporting suspicious financial activities, particularly targeting terrorist financing and money laundering operations, thus safeguarding national security.

So what does this have to do with an HOA or Condominium? As presently written and interpreted, the new law will impose new requirements on LLC’s, corporations, and nonprofit corporations, such as HOA’s and condominiums. Additionally, any entity filing with the Secretary of State is subject to compliance. The attorneys we work with that specializes in community associations, have opined that this obligation extends to Homeowner Associations and Condominiums.

Under this legislation, certain businesses are mandated to submit a Beneficial Ownership Information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). All existing HOA’s and Condos will have one year to meet the CTA’s requirements, until January 1, 2025. For new communities formed in 2024, there will be a 90-day compliance period. Starting in 2025, the filing period for new communities will decrease to 30 days.

The CTA requires every nonprofit corporation to report its full name, address and such as its federal tax identification number. Additionally, companies must identify their “beneficial owners”, which includes board of directors and officers of an HOA. Directors must provide their full name, their date of birth, current address and a “unique identifying number”. This could be a non-expired passport, a non-expired government issued id card or a non-expired driver’s license. A photo or scan of one of these must be submitted.

The impact of the Corporate Transparency Act on homeowners associations is significant, potentially discouraging individuals from volunteering and challenging operational efficiency. The Community Association Institute (CAI), the largest trade group for HOA’s and condominiums, has requested that HOA’s and condos be exempted, but this has not occurred yet. Until that occurs, they must meet requirements mandated for all corporations.

Consequences of Non-Compliance

Failure to comply with reporting requirements carries significant penalties. Violations could be punishable by a civil daily fine of $500.00 per day (up to $10,000 total) or even criminal fines or imprisonment for a maximum of 2 years for willful failure to file.

Reporting Requirements

CTA’s reporting requirements begin January 1, 2024. Reporting companies in existence before that date will have until January 1, 2025 to file an initial report. Reporting companies created on or after January 1, 2024 will have 30 calendar days after the date of formation or registration to file an initial report. Once filed, if previously reported information changes, the association must file an amendment to its beneficial ownership report within 30 days. This places a burden on Board of Directors to ensure that any changes in their board membership must be promptly reported.

Recent News

In early March 2024, a federal district court in Northern Alabama ruled that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of Treasury and FinCEN from enforcing the Act upon the specific plaintiffs (NSBU vs. Yellen). Despite this singular ruling we must continue to follow the law. This ruling will be appealed, and the outcome may take months.

For additional information or to file a BOI report, click here.