The Corporate Transparency Act (the “CTA”) that was enacted by Congress in 2021 will go into effect at the start of 2024. While the Corporate Transparency Act was implemented to combat the use of shell corporations, LLC’s, partnerships, and other entities to facilitate terrorist funding, corruption, tax fraud, and other illicit activities, it will also likely apply to HOA 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). As of now, members of Boards of Directors will be 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 Corporate Transparency Act, the Act most likely does apply. This means community associations must comply with the required reporting of the Corporate Transparency Act. We and our colleagues around the country are advocating for Congress to adopt an express exemption for community associations, 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 Corporate Transparency Act’s stated purpose is to address “the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism.” The Corporate Transparency Act (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 will be required to file reports.
What are Beneficial Owners under the Corporate Transparency Act?
A beneficial owner of these Reporting Companies is defined by the CTA as “any individual who, directly or indirectly”:
- Exercises “substantial control” over a corporation or limited liability company; or
- 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, the general community association industry consensus is that section 1 likely covers all officers, directors and potentially the manager(s) 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 Corporate Transparency Act (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, directors, or managers, unless, possibly, if they are a large-scale community. More details are in the BOI Small Compliance Guide v1.1 (fincen.gov).
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 Compliance Guide v1.1 (fincen.gov).
Are HOAs and Condominium Associations Exempt from the Corporate Transparency Act (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 Corporate Transparency Act (CTA) and To Whom?
Reporting Company. The Reporting Company must file a beneficial ownership report with FinCEN which includes:
- The legal name of the Reporting Company;
- Any trade names or “doing business as” name of the Reporting Company;
- The current street address of the principal place of the Reporting Company;
- The state of formation of the Reporting Company;
- The State where the Reporting Company first registered to do business; and
- 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:
- The individual’s name;
- Date of birth;
- Residential address;
- A unique identifying number and issuing jurisdiction, which will likely be either a current:
- Driver’s license number; or
- United States passport number (a foreign passport would be acceptable if the individual does not possess a driver’s license or US passport);
- A copy of the driver’s license or passport
When and Where Must Homeowners Associations File Their Reports?
The CTA reporting system is not yet open. Once it opens, 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 a recently extended 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.
How Often Must Community Association file a Report?
Under the current language of the CTA, each time there is a change in the officers, directors, or managers, or their addresses, a corporation must submit an updated report within 30 days after the date of the change.
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 $10,000.00 for willful failure to report or filing erroneous reports.
Is There Any Chance the CTA Will Be Amended?
We don’t know, although many community association attorneys from around the country and the Community Associations Institute are working together to advocate for exemption of HOAs and condominium associations. It is possible that Congress will realize that this law should not apply to community associations and add them to the list of exempt entities. However, if that does not happen the first half of 2024, we recommend associations proceed with compliance to avoid the last-minute rush to file and ensure they avoid any penalties for failure to comply.
If you have any questions about the CTA or how we can help your community association with legal representation or guidance please reach out to us through our contact form. From there, you’ll have a dedicated team of attorneys to help with any legal assistance you might need. We look forward to working with you and helping you to navigate the new CTA legislation.