Corporate Transparency Video
By the end of 2024, most homeowner associations will need to 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 the reporting is to track suspicious activity, money laundering, and terrorist financing by small companies, including community associations.
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, very few associations are exempt. FinCEN states that associations that, "HOAs recognized by the IRS as section 501(c)(4) social welfare organizations (or that claim such status and meet the requirements) may qualify for the tax-exempt entity exemption."
Exceptions. Associations that meet all six of the following criteria may qualify for an exemption from the reporting requirements.
- The association employs more than 20 full time employees, when applying the meaning of full-time employee provided in 26 CFR 54.4980H-1(a) and 54.4980H-3. In general, “full-time employee” means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer.
- More than 20 full-time employees of the association are employed in the United States, as that term is defined in 31 CFR 1010.100(hhh).
- The association has an operating presence at a physical office within the United States. “Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
- The association filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales. If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.
- The association reported greater than $5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
- When gross receipts or sales from sources outside the United States, as determined under Federal income tax principle, are excluded from the association's amount of gross receipts or sales, the amount remains greater than $5,000,000.
Required Information for Corporate Transparency
Associations must provide (i) full legal name of the association, (ii) physical address of the association, (iii) the association’s tax ID number. "Beneficial owners" must provide (i) their date of birth, (ii) their residential or business address, and (iii) a unique identification number from an acceptable document (e.g., passport, driver’s license) along with an image of the document.
Board Members are Beneficial Owners
A beneficial owner is anyone who exercises substantial control over a company or owns or controls at least 25% of the ownership interests. For associations, all board members are considered beneficial owners. If a developer own at least 25% of the separate interests, he may be required to report.
How to Report? FinCEN has a BOI E-filing website where beneficial owners can report directly: https://boiefiling.fincen.gov/. Information for all beneficial owners must be submitted at the same time. There is no option on FinCEN’s website to save information and pick up where you left off. Third-party companies can file the beneficial owner information for a fee. Most of these companies can collect all beneficial owners’ information separately and then report it to FinCEN’s website once all information has been collected. Following is a company that handles reporting for homeowner associations:
CTA Review
200 Main Street #204B
Huntington Beach, CA 92648
(714) 276-1711
www.ctareview.com
Natalie Stewart
[email protected]
Deadline & Fines for Failure to Report
Communities established before January 1, 2024, have until January 1, 2025, to submit their initial report. If an association fails file the required report, it is subject to a civil fine of $591 per day, up to $10,000, plus criminal fines or prison time for willful failure to report or filing erroneous reports.
Update Governing Documents. Associations should revise their bylaws, election rules, call for candidates/nomination forms, and code of conduct documents to mandate that board members cooperate in providing the information to comply with the CTA reporting. Contact our office for more information about updating governing documents to address CTA reporting.
CAI Lawsuit - CAI Membership Is Essential for Exemption from Corporate Transparency Act
On behalf of the more than 365,000 community associations and 2.5 million volunteer leaders that will be impacted by the CTA, the Community Associations Institute approved the filing of a lawsuit to exempt community associations from CTA's burdensome requirements. See message from Tom Skiba, CEO of the Community Associations Institute. Based on an interpretation in a similar case, “association standing” may protect all members of an organization in legal proceedings. If CAI succeeds in securing an exemption, it is very possible it will apply only to CAI members. Maintaining your CAI membership could protect your association from costly and time-consuming efforts to comply with the act.
NOTE: On Oct. 24, 2024, a motion for preliminary injunction was denied. The injunction was sought to postpone the deadline for community associations to comply with the act’s burdensome requirements until the case could be fully heard by the court.
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Questions and Answers
Following are questions submitted by attendees of our webinar.
QUESTION: We don't have a clubhouse address in our community. We use our management company's address for HOA business. Is that the address we should report?
ANSWER: Companies are required to use the street address of its principal place of business, which is legally defined as the location where the "business" occurs. For small associations with no common area address, this is a problem. If they meet in a board member's unit, it may mean using that as their address, since that is where board business occurs. If all board meetings occur offsite, maybe that is what you use. The Feds didn't think this through when they included homeowner associations in the CTA. Efforts are underway to get associations out of this intrusive regulation.
QUESTION: What if board members refuse to provide their information?
ANSWER: They could be subject to penalties for willful noncompliance. Their refusal could also subject the association to penalties.
QUESTION: Can an uncooperative director be removed from the board?
ANSWER: Yes--if you amend your bylaws to give directors authority to vacate the seat of a fellow director who refuses to comply.
QUESTION: Does the 25% ownership owner get recorded on the same Beneficial Ownership Information (BOI) report as the board? Or do they do it on their own?
ANSWER: All information for a reporting entity must be submitted at the same time.
QUESTION: Is "control" defined somewhere? Seems this is about who can handle funds or enter into agreements.
ANSWER: The Financial Crimes Enforcement Network (FinCEN) defined “substantial control” as an individual who meets any of the four general criteria: (1) the individual is a senior officer; (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. FinCEN further says that important decision-makers are any individual who directs, determines, or has substantial influence over important decisions made by the reporting company including decisions regarding business, finances or structure.
QUESTION: Can board members create their own FinCEN number and provide it, versus the same information each time?
ANSWER: Yes, FinCEN IDs can be used in a BOI Report in place of each board member's personal information being submitted to the individual or company filing the report. It can simplify reporting by allowing board members to use the ID instead of re-entering personal details each time. Doing so protects director privacy and reduces errors. It also makes updating information easier.
QUESTION: If an association goes into receivership, does the receiver have to report? They would not be an owner, nor benefit, but would control assets.
ANSWER: If the receiver has substantial control over the HOA, he/she would be deemed a "beneficial owner" because of the control the receiver exercises over the association.
QUESTION: What if our community does not have a board?
ANSWER: Then you have more serious issues than complying with the CTA.
QUESTION: What format does the picture of a driver's license or passport have to be in order to upload information?
ANSWER: Acceptable formats are pdf, jpg, jpeg, doc, xls, ppt, png, and gif. The maximum file size is 32 MB per photo. The only file type that does not work is heic (a “live” photo).
QUESTION: if a member of the board is already registered for a different entity do they need to register again for their association?
ANSWER: Yes. The filing is by reporting companies. It is possible that individuals may have to file under several reporting companies.
QUESTION: What about a board member who does not have a driver's license or passport?
ANSWER: He/she can use a state ID card or other government ID. Other official government-issued identification may be acceptable if it includes a photograph.
QUESTION: Does an association's insurance cover noncompliance?
ANSWER: If the government sues your board, insurance might defend, but it will not pay any penalties. All insurance-related questions should be answered by an insurance professional.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.