As of January 1, 2024, the newly enacted federal Corporate Transparency Act (CTA) is in effect. This legislation has significant implications for various business entities across the United States, including Homeowners Associations (HOAs). Here’s a detailed look at what the CTA entails and what it means for HOAs.
What is the CTA?
The Corporate Transparency Act was passed to aid the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) in combating criminal money laundering schemes. By mandating the disclosure of information about individuals who own and control business entities, the CTA aims to enhance transparency and reduce illegal financial activities. The information collected under the CTA is confidential and not accessible to the public.
Does the CTA Apply to HOAs?
Yes, the CTA applies to almost every company formed under the laws of any U.S. state through the filing of formation documents, such as articles of organization, articles of incorporation, or certificates of limited liability. This includes HOAs.
There has been ongoing discussion about whether HOAs will remain subject to the CTA. However, the Community Associations Institute’s (CAI) Federal Legislative Action Committee (LAC) has indicated that it does not expect Congress to amend the CTA to exempt HOAs this year. Similarly, there is no sign that the Treasury plans to use its rulemaking authority to provide such an exemption. As a result, HOAs must comply with the CTA by the end of the year.
CAI’s Legal Challenge
CAI has announced its intention to file a federal lawsuit against the Treasury to challenge the CTA’s applicability to HOAs. While this lawsuit might result in a federal court decision exempting HOAs from the CTA’s reporting requirements, there is no guarantee of this outcome. Moreover, it is unlikely that such a lawsuit will be resolved before the end of the 2024 reporting period. Therefore, HOAs should prepare to comply with the CTA for the time being.
Reporting Requirements for HOAs
Under the CTA, each HOA must report certain basic information about the nonprofit corporation, including its name and business address. Additionally, information about each “Beneficial Owner” must be provided. For HOAs, a “Beneficial Owner” includes individuals who exercise substantial control over the company, such as board members. The required information for each Beneficial Owner includes:
- Name
- Home address
- Date of birth
- Government ID number (passport or driver’s license number)
Reporting Deadlines
- HOAs Created Before January 1, 2024: Initial reports must be filed with the Treasury by January 1, 2025.
- HOAs Created in 2024: Initial reports must be filed within 90 days of formation.
Consequences of Non-Compliance
Failure to file the required reports can result in severe penalties. Willfully failing to report carries a civil penalty of up to $500 for each day the report remains delinquent. Additionally, criminal penalties can include fines of up to $10,000 and imprisonment for up to two years.
How SJJ Law Can Help
While the initial reports under the CTA are not overly complex, the penalties for non-compliance are substantial. SJJ Law is equipped to assist communities in complying with the CTA at every step of the reporting process.
SJJ Law has an account set up with FinCEN to facilitate reporting on behalf of clients. Our services include:
- Collecting necessary reporting data from each community (e.g., board members’ names, home addresses, dates of birth, and passport or driver’s license numbers).
- Reporting the required data to the Treasury using the FinCEN reporting system.
- Updating the HOAs’ data when there is a change in board membership, such as after annual meetings or upon the resignation or replacement of a board member.
We are committed to ensuring that your community remains compliant with the CTA, mitigating the risk of significant penalties. For assistance with your CTA reporting requirements, contact SJJ Law today.
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