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Corporate Transparency Act (CTA) applies to Homeowner Association and Board of Directors

by | Apr 29, 2024 | Corporate Law, HOA, REAL ESTATE LAW - Real Estate Law

New Reporting Requirement for Homeowner Associations Under the Corporate Transparency Act

Homeowner Associations  in Minnesota and around the country now have a new reporting requirement. As of January 1, 2024, Homeowner Associations need to start identifying the “beneficial owners” of their  Homeowner Associations, as defined under the Corporate Transparency Act (“CTA”) (31 U.S.C. § 5336).  This new law for Homeowner Association and requires certain entities or “reporting companies” to report information about the “beneficial owners,” the corporation, and company applicants to the Financial Crimes Enforcement Network of the U.S. Treasury (FinCEN).

This law is part of a recent effort by the federal government to make information available to law enforcement entities to help detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, tax fraud, or other crimes. The CTA requires reporting companies, including homeowner associations, cooperatives and other common interest communities to report information relating to their beneficial owners.

Homeowner Associations Are Required to Report

The CTA applies to a broad array of entities, including business entities such as corporations, nonprofit corporations, limited liability companies, and other similar entities that are created by filing with the state. This will include Homeowner Associations formed under Minnesota’s nonprofit corporation statute, Chapter 317A.  Homeowner associations and  currently do not fall under one of the provided exemptions under the statute. While the CTA does provide exemptions for certain kinds of nonprofit corporations that also qualify for tax exempt status under § 501(c), these do not apply to Homeowner Associations, which are commonly taxed under § 528 of the tax code.

When Does this Report Need to be Completed?

If your Homeowner Association was created before January 1, 2024, then your association has until January 1, 2025 to file the initial report. For any new  Homeowner Associations created or registered on or after January 1, 2024, but before January 1, 2025, those entities will have 90 days to file initial reports after receiving notice of the company or associations creation. Reporting companies or associations created or registered after January 1, 2025, will then have 30 days after receiving notice of their creation or registration to file initial reports. Failure to comply with these requirements can result in fines.

Who Needs to be Identified?

The CTA requires reporting companies, including homeowner associations to identify their beneficial owners in the entity, which is defined under the statute as “an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise– (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” 31 U.S.C. § 5336(a)(3)(A).  This statute applies to both Owners in a homeowner association who have at least 25% membership interest in the Association as well as those exercising “substantial control.”

An individual will be seen by FinCEN as exercising “substantial control” if they meet any of the following criteria:

  1. The individual is a senior officer (i.e., President, Chief Financial Officer (CFO), General Counsel, Chief Executive Officer (CEO), or Chief Operating Officer (COO);
  2. The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
  3. The individual is an important decision-maker; or
  4. The individual has any other form of substantial control over the reporting company.

Typically, Homeowner Associations are governed by a Board of Directors who are likely seen to exercise “substantial control” in the Association and be included in the report. However, not all Homeowner Associations are alike and those with substantial control may vary between Associations.

Reporting Requirements and Filing Beneficial Ownership Information

Generally, in order to comply with this new law, the Beneficial Ownership Information report (“BOI report”) to FinCEN requires information about the organization, the beneficial owners, and the organization’s applicant. Information for individuals include:  Full legal name, date of birth, Current residential or business address, and a unique identifying number from an “acceptable document” such as a driver’s license or passport.

Additional Consideration for a Board of Directors

This reporting requirement should be looked at closely with counsel and updated from time to time because this report is not a one-time filing; there is a continuing duty to maintain up-to-date information. Any time there is a change to the beneficial ownership, the CTA requires that changes to the beneficial ownership be reported within 30 days of that change. Failure to adhere to this reporting requirement can result in fines.

We also note a word of caution for filing these reports: be aware of fraud.  FinCEN warns about recent attempts by third parties to solicit sensitive information from unsuspecting persons that could be used for fraudulent purposes. FinCEN has stated that they do not send unsolicited requests or links.

Update: Recent Decision and Appeal

On March 1, 2024, a federal district court located in the Northern District Alabama ruled that the CTA was unconstitutional, bringing this reporting requirement into question and granting the plaintiffs named in that case relief from the statute.  This did not apply relief to all entities in the United States. As of writing of this post, this was appealed by the U.S. Justice Department on March 11, 2024. This decision has brought the legality of the CTA and is being appealed to the 11th Circuit Court. Despite this ruling at the district court, other entities not part of the case will still currently need to comply with the CTA, including Homeowner Associations, and FinCEN has announced that they will continue to implement the CTA as required by Congress.

The information contained in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us at Greenstein Sellers, PLLC and welcome your calls, letters, and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. If you send us information in any form prior to the formal establishment of an attorney/client relationship, we will be free to use it for any lawful reason, and you may be deemed to have waived any element of confidentiality associated with that information.

For more information on how your homeowner association is required to comply with the CTA, please contact an attorney at Greenstein Sellers.  You can reach out with any requests to [email protected]