Beginning January 1, 2025, companies with less than $5 million in gross receipts and fewer than 20 full-time employees and without an IRS 501(c)(4) tax-exempt determination, must file information online with the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. The 51-question initial report must be completed by January 1, 2025. The purpose of this burdensome reporting is to track suspicious activity, money laundering, and terrorist financing, none of which community associations are involved with.
Reporting Company Defined. The definition of a “reporting company” includes all corporations, limited liability companies, some trusts, and other entities that are formed or registered to do business in the United States. Unless an exemption applies, a “reporting company” is any entity that is created by filing a document with the secretary of state, state corporation commission, or similar state office. Unfortunately, community associations are not exempted. It means associations must include the identity of the person with substantial control over the association's finances.
Substantial Control. Boards are required to identify all individuals who exercise substantial control over the association. A person exercises substantial control over the association he/she meets any of four general criteria: (1) the individual is a senior officer; (2) the individual with the authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the person is an important decision-maker; or (4) the person with any substantial control over the association. The two officers that fit the criteria are the President and the Treasurer. They would be the ones to go online and fill out the reporting requirements.
Reporting the Numbers. Boards of directors or the association's manager should go to the U.S. Beneficial Ownership Information Registry to obtain a "Financial Crimes Enforcement Network (FinCEN) ID. The association's Treasurer would likely be deemed as the person with substantial control over the association's finances. The numbers requested on the government's website will need to be input using their BOI E-Filing System. BOI stands for "Beneficial Ownership Information." For more about the Act, see Unveiling the Federal Corporate Transparency Act and the Small Entity Compliance Guide.
Deadline & Fines. The filing deadline for existing corporations is January 2025. If associations fail to file the required reports, they are subject to a civil fine of $500.00 per day, up to $10,000.00, plus criminal fines or prison time for willful failure to report or filing erroneous reports.
CAI Advocacy. The Community Associations Institute is working to exempt associations from this intrusive regulation.
NOTE: On March 1, 2024, a federal court in Alabama ruled that the Corporate Transparency Act is unconstitutional. Unfortunately, the relief granted by the Alabama court is limited to the plaintiff in the case, the National Small Business Association. The judgment leaves the CTA intact against homeowner associations. The decision will likely be appealed and it will ultimately end up before the U.S. Supreme Court. In the meantime, the Act is enforceableYou can read the court's decision here: Nat'l Small Business United v. Yellen.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.