The Corporate Transparency Act And HOAs

Money laundering has been a major problem in the U.S. Those behind these schemes exploit existing laws and loopholes to conduct illicit activity. The Corporate Transparency Act, while intended to limit criminal activity, also has implications on HOAs as they are often incorporated. Here’s everything you need to know about the Corporate Transparency Act and HOAs.

What Is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal anti-corruption act passed by Congress in 2021. It seeks to fight against financial crime by mandating reporting companies to disclose information about their beneficial owners. These companies must report to the information to the Financial Crimes Enforcement Network (FinCEN).

The Corporate Transparency Act final regulations outline specific Beneficial Ownership Information (BOI) reporting requirements. Domestic reporting companies must file the following information:

• Business name
• Legal name, home address, birth date, and identification number of each beneficial owner and company applicant (if required)

Any changes, corrections, or additions to the filing must be made within 30 days after the corporation finds out about the change. The Corporate Transparency Act effective date is on January 1, 2024.

Why Is the Act Important?

The Corporate Transparency Act aims to create an easily accessible national database of all corporate beneficial owners. It will help the authorities look for information and cross-reference data to pinpoint suspicious persons and monitor criminal activity.

Additionally, accountability prevents small businesses from engaging in money laundering. People with bad intentions cannot hide their assets using shell companies — at least, not as easily. Moreover, the increased protection can also help with investor confidence.

What Are the Consequences of Noncompliance?

The Corporate Transparency Act and HOAs are inherently intertwined. Thus, the board members of an HOA need to meet the deadlines to file with FinCEN. Noncompliance carries civil penalties of $500 per day. Willful violations are considered felonies and can incur a penalty of up to $250,000 and up to 2 years in prison.

Do HOAs Need to Comply?

As a board member, you might be wondering: is there any link between the Corporate Transparency Act and HOAs? Does the new law apply to homeowners associations or can they ignore the filing requirements?

Defining a Domestic Reporting Company

Unfortunately, homeowners associations are included in the act so long as they meet the definition of a domestic reporting company. Board members must look at the HOA’s corporate form and how it was made to determine applicability.

So, who are domestic reporting companies? All corporations, limited liability companies (LLCs), statutory trusts, business trusts, limited partnerships, and foreign corporations registered to conduct business in the U.S. are considered domestic reporting companies. It also includes any institution filed with the Secretary of State or a similar office under state law — including Indian Tribes.

Most homeowners associations, incorporated condominium associations, and cooperatives file their association documents with the Secretary of State. As a result, they are also required to follow the CTA and file information with FinCEN. However, there are certain exemptions.

Who Is Exempt?

Community associations with annual revenue exceeding $5 million, employing 20 or more people, and maintaining a physical office in the United States are exempt under the current regulations.

In addition, the following entities are specifically exempt:

• Banks
• Investment companies
• Credit unions
• Venture capitals
• Securities exchanges
• Insurance companies
• Accounting firms
• Public Utilities
• IRS-qualified tax-exempt organizations, including HOAs holding an active 501(c)(4) IRS tax exemption

How Does the Corporate Transparency Act Affect HOAs?

Homeowners associations are generally required to comply with the CTA. Hence, they must file information regarding their beneficial owners with FinCEN. Who are the beneficial owners of an HOA? The CTA defines beneficial owners as individuals who:

• Directly or indirectly wield substantial control over the association, or
• Own or control at least 25% of the association’s ownership interests

Few individuals own or control at least 25% of the interests within a single community. This means that, for most homeowners associations, a beneficial owner will be defined by the first qualification. FinCEN defines individuals who wield substantial control as:

• Senior officers (i.e. president, general counsel, CEO, etc.)
• Individuals with the authority to nominate or remove officers or a majority of board members
• Important decision-makers
• Anyone who has substantial authority over the association (e.g. control or ownership of voting rights, stock, and equity)

Homeowners associations must examine which individuals meet these criteria. For the most part, beneficial owners will generally include board members. It may also include developers, declarants, and declarant-appointed directors if the declarant still owns 25% of the interests. However, it is still unclear as to whether management companies and HOA managers are beneficial owners.

Do HOAs Need to Amend the Bylaws?

Since homeowners associations are usually considered domestic reporting companies, it’s best to amend the bylaws to accommodate the CTA. Homeowners associations can add a disqualification clause for directors who refuse to agree to the reporting requirements. After all, noncompliance can lead to hefty monetary penalties and even jail time.

How to File With FinCEN

Homeowners associations may file the information online via FinCEN’s reporting website. HOA managers or board members may download a copy of the blank form and reupload it online. However, you may need Adobe Acrobat to complete the form.

Alternatively, HOAs can file the BOIR with FinCEN’s page and follow the prompts. HOAs must fill in the required information and upload a picture of each beneficial owner’s identification document.

When Should You File With FinCEN?

If the association was established before January 1, 2024, the HOA must file the initial reports by January 1, 2025. Meanwhile, HOAs established in 2024 have 90 calendar days from the effective date of registration or creation, whichever date comes first.

It’s important to note that filing is not an annual requirement. Instead, homeowners associations only need to submit the report once unless they need to correct or update the information.

Corporate Transparency Act and HOAs: Adapting to the Changes

Most homeowners associations are required to file information with FinCEN. Failure to do so can result in major consequences for the association. It will not only cost money but may also lead to jail time.

Do you need assistance with the filing requirements? A professional HOA management company can help. Find one today through our online directory!

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