Important Updates Regarding Reporting Required for HOAs and Condominium Associations

The Corporate Transparency Act (the “CTA”) that was enacted by Congress in 2021 went into effect at the start of this year. While the CTA was implemented to combat the use of shell corporations, LLCs, partnerships, and other entities to facilitate terrorist funding, corruption, tax fraud, and other illicit activities, it also applies to HOAs and condominium associations. 

Effective January 1, 2024, most United States corporate entities will be required to report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Members of Boards of Directors are required to disclose personal information ranging from date of birth to a copy of a driver’s license or passport. Willful failure to provide this information or filing erroneous reports could result in substantial fines and potential criminal penalties, including imprisonment.

While it seems illogical that Congress intended the Act to apply to HOAs and condominium associations, as explained below, under the current language of the CTA and FinCEN’s interpretation updated in April 2024 with FinCEN FAQs, the Act does apply. This means community associations must comply with the required reporting of the CTA. We and our colleagues around the country continue to advocate for Congress to adopt an express exemption for community associations and we have been involved with pending litigation to obtain an exemption, but, for now, that exemption does not exist. Boards of Directors for existing associations will most likely need to comply with the currently mandated reporting deadline before January 1, 2025.

What is the Corporate Transparency Act?

The CTA’s stated purpose is to address “the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism.” The CTA requires small corporations, limited liability companies, and companies created by filing a document with their state (each such entity is referred to as a Reporting Company) to file a report to disclose information about their beneficial owners. Because Georgia’s homeowner and condominium associations are nonprofit corporations established by filing articles of incorporation with the Georgia Secretary of State, they are Reporting Companies and are required to file reports.

What are ‘Beneficial Owners’ under the CTA?

A beneficial owner of these Reporting Companies is defined by the CTA as “any individual who, directly or indirectly”:

1. Exercises “substantial control” over a corporation or limited liability company; or 
2. Owns 25% or more of the interest in a corporation or limited liability company. 

Unless your association has four or fewer units, Section 2 does not likely apply. However, Section 1 covers all officers and directors of incorporated condominium and homeowner associations in Georgia and those controlling them.

An individual has substantial control if they direct, determine, or exercise substantial influence over important decisions the Reporting Company makes, for example, for the unit or lot owners in a community association.

Are There Any Exceptions to Reporting Under the CTA? 

Yes, there are 23 CTA exemptions!  Unfortunately, it is unlikely that any of them apply to Georgia condominium or homeowner associations or to their officers or directors, unless, possibly, if they are a large-scale community. More details are in the BOI Small Entity Compliance Guide.

Large-Scale Associations Take Note! 

If your association governs a large-scale community, it’s possible your association might be exempt. A corporation that has (a) more than 20 full-time employees in the United States; (b) has filed a federal tax return recording more than $5 million in gross receipts or sales in the previous year; and (c) has an operating presence in the United States may qualify as an exempt “Large Operating Company.” There are not many such large-scale associations in Georgia, but if yours meets these criteria, it may be exempt pursuant to the six criteria on page 12 of the BOI Small Entity Compliance Guide.

Are HOAs and Condominium Associations Exempt from the CTA if They Don’t Pay Any Federal Income Taxes?

Probably not. Most HOAs and condominium associations do not qualify as tax-exempt. If your association has applied for and received tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, then it would be exempt from the CTA. However, most associations are not tax-exempt, and, likewise, they will not be exempt under the CTA as currently stated.

What Information Must be Reported Under the CTA and to Whom?

Reporting Company: The Reporting Company must file a beneficial ownership report with FinCEN which includes:

1. The legal name of the Reporting Company;
2. Any trade names or “doing business as” name of the Reporting Company;
3. The current street address of the principal place of the Reporting Company;
4. The state of formation of the Reporting Company;
5. The State where the Reporting Company first registered to do business; and
6. The IRS Taxpayer Identification Number (“TIN”) of the Reporting Company. 

Beneficial Owner: The CTA mandates the creation of a database of Beneficial Ownership Information (“BOI”) for Reporting Companies. Every beneficial owner and company applicant must include the following beneficial owner information on their report:

1. The individual’s name;
2. Date of Birth;
3. Residential address;
4. A unique identifying number and issuing jurisdiction, which will likely be either a current:
   • Driver’s license
   • United States passport number (a foreign passport would be acceptable if the individual does not possess a driver’s license or US passport); and 
5. A copy of the driver’s license or passport. 

When and Where Must Associations File Their Reports?

The CTA reporting system is now open. BOI Reports must be filed electronically through FinCEN’s secure filing system called the Beneficial Ownership Secure System (BOSS). A Reporting Company created or registered before January 1, 2024 will have one year to file its initial BOI Report. This means existing community associations must file their report by December 31, 2024.

A Reporting Company, including newly established homeowner and condominium associations, created or registered on or after January 1, 2024 and before January 1, 2025 will have 90 days to file their initial BOI Report. Entities created or registered on or after January 1, 2025 will have 30 calendar days to file their BOI reports with FinCEN.

Nowack Howard Can Help!

NowackHoward is offering to assist Boards of Directors to keep up with CTA reporting. The system our firm will utilize will send regular reminders for each director to quickly and securely gather and ultimately file the required information. If you would like our assistance, please email CTA@nowackhoward.com and we will provide more information to initiate the process.

How Often Must a Community Association File a Report?

Under the current language of the CTA, each time there is a change in the officers or directors, or their addresses, a corporation must submit an updated report within 30 days after the date of the change. It will be critical that your Board utilize a system so that the reporting of the changes becomes second nature. The system NowackHoward will utilize assists with these updates as well.

Are There Penalties for Violating the CTA or Failing to Report?

Yes! There are serious penalties including a civil fine of $500 for each day the violation continues, as well as potential criminal penalties of up to two (2) years in prison and a fine up to $10,000 for willful failure to report or filing erroneous reports. 

Is There Any Chance the CTA Will Be Amended?

We don’t know, although we, along with many of our community association colleagues from around the country and the Community Associations Institute, are working together to advocate for the exemption of HOAs and condominium associations. There is a pending case in the Eleventh Circuit Court of Appeals where Julie Howard helped co-author an amicus brief to support exceptions for community associations. CAI has also filed a lawsuit in the Eastern District of Virginia challenging the application of the CTA to community associations. The first hearing in this case is currently scheduled for October 11, 2024. 

It is possible that Congress or the Courts will realize that this law should not apply to community associations and add them to the list of exempt entities. We encourage everyone to reach out to Congress to support this exemption. However, the deadline for filing is approaching and we recommend associations begin to plan for or proceed with compliance to avoid the last-minute rush to file and ensure they avoid any penalties for failure to comply. Contact CTA@nowackhoward.com if you would like assistance.