Corporate Transparency Chaos
1-1-21. Because companies doing business in the U.S. might be shell companies laundering money and supporting terrorism, President Biden signed into law the Corporate Transparency Act (CTA). The Act requires 32.6 million businesses, including homeowner associations, to report detailed, personal information about board members to the Financial Crimes Enforcement Network (FinCEN) on pain of severe penalties. They have until January 1, 2025 to submit their reports.
3-1-24. A federal court in Alabama ruled the CTA unconstitutional. Unfortunately, the ruling protected only the parties who filed suit. HOAs nationwide were still required to comply with the CTA.
4-15-24. The Community Associations Institute (CAI) met with FinCEN to seek an exemption for HOAs. Its request was denied.9-10-24. CAI sued FinCEN seeking a preliminary injunction to stop enforcement of the CTA against HOAs.
10-24-24. CAI's motion for a preliminary injunction was denied.
11-4-24. CAI appealed the court's denial of its motion.
12-3-24. In a separate action, Judge Amos Mazzant III of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc. v. Garland, halting the enforcement of the Corporate Transparency Act and its reporting obligations. The court ruled that the CTA was likely unconstitutional.
12-10-24. Due to the Texas ruling, FinCEN stated that companies were not subject to liability if they failed to report by the January 1, 2025 deadline.
12-23-24. The government appealed to the Fifth Circuit Court of Appeals. A "Motions Panel" granted an emergency motion to stay the nationwide preliminary injunction, which reinstated CTA's reporting requirements.
12-24-24. With its reporting requirements reinstated, FinCEN imposed a new reporting deadline of January 13, 2025.
12-26-24. The decision by the Fifth Circuit's Motions Panel was appealed to a full panel of judges of the Fifth Circuit Court of Appeals, which vacated the stay the Panel had issued three days earlier. The preliminary injunction was again in effect (Read the court order here.)
12-27-24. FinCEN reported that "In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force."
12-31-24. The Department of Justice (DOJ) filed an emergency application with the U.S. Supreme Court seeking a stay of the nationwide injunction or, in the alternative, a limitation of its scope to the plaintiffs in the case.
1-3-25. Supreme Court Justice Samuel Alito set a deadline of January 10, 2025 for the plaintiffs to submit their response to the government's application for a stay.
1-7-25. In a separate case, Means v. U. S. Department of the Treasury, the next federal judge to issue a nationwide preliminary injunction was Judge Jeremy Kernodle with the U.S. District Court Eastern District of Texas Tyler Division. He said the CTA “is unprecedented in its breadth and expands federal power beyond constitutional limits. It mandates the disclosure of personal information from millions of private entities while intruding on an area of traditional state concern.”
1-10-25. CAI filed an amicus brief with the U.S. Supreme Court. Read the brief here.
1-23-25. The US Supreme Court issued a stay on the nationwide injunction of the CTA's reporting requirements that was previously issued by the 5th Circuit District Court. It means HOAs will need to report their beneficial ownership information by the deadline established by FinCEN. We expect FinCEN to issue a new reporting deadline soon. You can read the US Supreme Court’s opinion here.
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SUPREME COURT OF THE UNITED STATES
No. 24A653
JAMES R. MCHENRY, III, ACTING ATTORNEY
GENERAL, ET AL. v. TEXAS TOP COP SHOP,
INCORPORATED, ET AL.
ON APPLICATION FOR STAY
[January 23, 2025]
The application for stay presented to JUSTICE ALITO and by him referred to the Court is granted. The December 5, 2024 amended order of the United States District Court for the Eastern District of Texas, case No. 4:24–cv–478, is stayed pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of a petition for a writ of certiorari, if such a writ is timely sought. Should certiorari be denied, this stay shall terminate automatically. In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court.
JUSTICE GORSUCH, concurring in the grant of stay. I agree with the Court that the government is entitled to a stay of the district court’s universal injunction. I would, however, go a step further and, as the government suggests, take this case now to resolve definitively the question whether a district court may issue universal injunctive relief. See Labrador v. Poe, 601 U. S. ___, ___–___ (2024) (GORSUCH, J., concurring in grant of stay) (slip op., at 4–5, 11–13); Department of Homeland Security v. New York, 589 U. S. ___, ___–___ (2020) (GORSUCH, J., concurring in grant of stay) (slip op., at 1–5).
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CTA Requirements
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. 
Corporate Transparency Video 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.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.