The Corporate Transparency Act (CTA) is a federal law, with an aim to create ownership transparency of many different entities across the United States. The primary goal of the CTA is to combat money laundering, terrorist financing, and other illicit financial activities with a requirement of a businesses to disclose ownership information to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA has a significant impact on community associations and requires most HOAs to comply.
Here is what the CTA means for HOAs and their Board of Directors:
Are Homeowner Associations (HOAs) subject to the CTA?
The CTA requires corporations and limited liability companies (LLCs), and similar entities to report beneficial owners directly to FinCEN. A “beneficial owner” is defined as any individual who directly or indirectly owns or controls at least 25% of a company or exercises substantial control over the company’s operations. Substantial control is defined as an individual who serves as a senior officer of the company (i.e.. a community association board member); have authority over the appointment or removal of senior officers; have the authority over the appointment or removal of a majority of the board of directors of the company; direct, determine, or has substantial influence over the important decision of the company; or have any other form of substantial control.
According to FinCEN, each individual community association board member (director) is considered to be a beneficial owner. FinCEN expects that every reporting company (association) will have at least one person who qualifies as a beneficial owner. Beneficial owners cannot be: Minors, proxies or power of attorney agents, employees whose sole control over the entity comes from employment, someone who only has an interest in the entity through inheritance, credits of the company.
There are few exceptions: Community associations holding an active 501(c)(4) IRS tax exemption, community associations with more than $5 million in annual revenue and 20 or more employees who qualify under the current exemptions and has an operating presence at a physical office within the US.
Responsibilities for HOA Board Members:
If a community association is required to comply with the CTA, board members will need to:
- Report beneficial owner information to FinCEN which includes: Full legal name, date of birth, current residential or business street address, a unique identifying number from an acceptable identification document OR a FinCEN identifier (i.e. current U.S. passport, US ID, drivers’ license, etc.)
- Stay updated on Regulatory Changes: CTA Requirements are relatively new and as the law evolves board members have the obligation to remain informed on updates to reporting requirements and deadlines
- While information reported to the CTA is not made public, it is available to law enforcement. HOA board members will want to ensure that any change in personal details, or beneficial owners is disclosed to FinCEN. All information must be updated within 30 days to comply.
Efforts to Exempt Associations
The Community Associations Institute (CAI) Advocacy Group has been actively lobbying to exempt associations from these reporting requirements. However, their efforts to secure an exemption have been unsuccessful thus far. Therefore, as of now, associations are not excluded from this mandate and must comply with the CTA’s provisions. Visit https://www.caionline.org/advocacy/advocacy-priorities-overview/corporate-transparency-act/ for additional information regarding CAI’s efforts to exempt the CTA from community associations and to stay updated on recent developments.
Potential Consequences of Non-Compliance:
Any person who violates reporting requirements could be liable to the United States and can include civil penalties of $500 per day and criminal penalties of up to $10,000. In cases of willful failure to comply, individuals may also face imprisonment of up to 24 months.
How Can I File Beneficial Ownership Information:
FinCEN allows for online filing on their website at https://boiefiling.fincen.gov/ with a deadline to comply being January 1,2025 for all existing associations. For associations incorporated after January 1,2024 the initial reports must be filed within 90 days of the notice of incorporation. Associations incorporated after January 1, 2025 will have 30 days for their initial filing.
At Kentuckiana Property Management, our team is ready to assist with the entire registration process to ensure compliance for all existing HOA clients We have partnered with a third-party, FinCEN report, that will provide a secure platform which includes collection of all necessary personal information from board members, reviewing the entity structure, and preparing and submitting the BOI report. We are also offering the additional following services to our clients:
- Initial registration and filing of BOI Report
- FinCEN Report annual subscription
- Annual updates and Maintenance
By authorizing us to proceed, we will ensure that the association complies with the law and avoids the risk of non-compliance penalties.
Best Practices for HOAs and Board Members:
- Seek guidance: Consulting with professionals who specialize in association management will help to ensure that your association remains compliant.
- Maintain accurate records: Keeping up-to date records of beneficial owners and stay informed with any changes of the law.
- Communication: HOAs should inform their board members about all reporting requirements under the CTA and the potential impact of non-compliance.
If you have any questions regarding the new Corporate Transparency Act, please reach out to us and we will give you the best guidance possible. For all existing community association clients managed by Kentuckiana Property Management please let us know how you would like to proceed with the filing to ensure a smooth and complaint transition or reach out to your property manager for additional information.
