Community Association clients should be familiar with the background and requirements for the law known as the Corporate Transparency Act (“CTA”). Congress recently enacted this law to address and curb money-laundering and terrorist financing. Unfortunately, it has ensnared a broad range of businesses within its requirements, including condominiums, cooperatives and homeowner’s associations. Upon realizing the extent of its requirements, various small businesses as well as Community Associations Institute (“CAI”) have taken steps to address it. However, unless the law is enjoined by a court or action is taken by Congress to delay its effective date, incorporated condominiums[1], cooperatives, and homeowner’s associations must complete a filing as further detailed below no later than December 31, 2024, or face significant monetary penalties.
- Actions Taken to Date to Stop CTA Application
One of the first movers against application of this law was the National Small Business Association (NSBA). It initiated a lawsuit in the U.S. District Court of the Northern District of Alabama to enjoin application of the CTA to its members. In March 2024, the NSBA was successful in obtaining an injunction to stop the application of the CTA to its members. The U.S. District Court Judge handling the case determined that the law was unconstitutional. The decision was appealed by the government and is currently pending in the United States Court of Appeals for the Eleventh Circuit. This decision applies only to the plaintiffs in that action and has not stopped the enforcement of the statute in other jurisdictions.
With legal challenges to the CTA, a Bill (H.R. 5119) was introduced in the House of Representatives and passed by a vote of 420-1 to delay the effective date of the CTA to December 31, 2025. Unfortunately, since that time, the Senate has failed to act on its companion Bill (S 3625). Facing a looming deadline, CAI’s Board of Trustees in June 2024 approved the filing of a lawsuit to exempt and protect community associations from the burdensome filing requirements of the CTA. This lawsuit was filed on September 10, 2024, in the U.S. District Court for the Eastern District of Virginia. While the Eastern District of Virginia is known as having a “rocket docket” meaning it moves cases on an expediated basis, it is unclear that an injunction will be issued by the Court prior to the December 31, 2024, filing deadline. For this reason, we are advising our clients to complete the necessary CTA filing this Fall. If assistance is needed with the filing, we are available to work with management and Boards to complete it.
- Requirements of the Law
To comply with the CTA, community associations must complete a filing registering the corporate entity and each of its Board Members and any owner that owns more than 25% of the percentage interest of the corporate entity on FinCEN’s on-line system (the Financial Crimes Enforcement Network part of the U.S. Department of Treasury) no later than December 31, 2024. To complete this filing, the following information will be needed:
The Corporation’s:
- Legal name;
- The current street address of its principal place of business;
- Its jurisdiction of formation or registration (State of Organization) and the date of formation;
- Its Taxpayer Identification Number; and
- Information on each beneficial owner/Board Member.
- With respect to Board Members or any owner that owns more than 25% of the percentage interest of the corporate entity, the following information must also be provided:
a. The individual’s name;
b. Date of birth;
c. Residential address; and
d. Identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document plus a scan of that document (such as a jpeg upload of the front side of the document submitted by each Board Member.)
Further, an Association is responsible for ensuring that its filed information remains current. When a change occurs, the law only provides an Association with 30 days to update its filing. This means an update to the filing must occur within thirty days of an annual meeting election in which Board Membership changes and within thirty days from the resignation/replacement of a Board Member. The CTA provides significant penalties for failure to timely complete an initial filing or any of the required updates. Therefore, it is important that Associations closely monitor compliance with the CTA’s filing requirements.
- Conclusion and Recommendation
As noted above, it is our recommendation that our incorporated community association clients prepare to complete their CTA filings in the Fall. If our assistance on the filing is needed, we ask that the Association first gather the required information noted in Section 2 above for both the Association and each of the Board Members. The Association should also determine whether any (other) individual owners qualify as beneficial owners, i.e. whether any individual owner owns more than 25% of the percentage interest in the corporate entity. Once this information is in hand, please contact our office to schedule a time to complete the filing. Our office will bill for these services on an hourly basis and we anticipate the actual costs will be between $375.00 and $500.00.
Once the filing is made, the Association will bear the responsibility for reporting to FinCEN any change to the Board going forward within the 30 days following that change, or letting us know so we can assist with the reporting.
[1] Please note that the CTA says that a company created by the filing of a document with a secretary of state or any similar office is required to report. An unincorporated condominium association that was not “created” by filing a document with a secretary of state or similar office is, therefore, likely not required to report. Owing to the newness of the statute, this issue has not yet been tested in the courts. The board of directors of unincorporated associations will need to decide, in consultation with legal counsel, whether to report and the possible compliance risks that may arise from not reporting.
