By SCOTT CARPENTER, Esq.
Carpenter Law Firm | www.carpenter.law
You may recall some previous correspondence from HOAMCO regarding the Corporate Transparency Act and the filing requirements that it creates for community associations. We do want to update you with what we have learned since then.
In the United States District Court for the Northern District of Alabama, a suit was brought by the National Small Business Association, and the court ruled that the Corporate Transparency Act was unconstitutional as it applied to the plaintiffs in the suit. This decision was handed down March 1, 2024, and the federal government appealed the decision on March 11. This ruling (pending appeal) however, only applies to the particular plaintiffs in the lawsuit, and does not have broader reaching implications. The ruling has no impact on any community associations managed by HOAMCO.
CAI (Community Associations Institute), an international membership organization dedicated to building better communities, has taken the position that the Anti-Money Laundering Act and Corporate Transparency Act were not intended to apply to community associations.
Although CAI is lobbying for an “exemption” for community associations, in a Presidential Election year, the chances for bipartisan agreement on any issue are always low. Could Republicans and Democrats come together on this issue before the filing deadline of December 31, 2024? Yes, it is within the realm of possibility, but is it likely? No.
In the meantime, below is the essential information about how the Corporate Transparency Act currently applies to community associations. Pending any federal action to the contrary, all associations existing before January 1, 2024, must make their initial report by December 31, 2024. Once the initial report is made, further reports only need to be made when information changes. In most cases this will be any time that the composition of the board changes. HOAMCO is committed to assisting our clients in complying with this new federal requirement. Beginning in early Fall, we will be coordinating the filings after annual meetings are held, and will be reaching out accordingly at the appropriate time.
Corporate Transparency Act and Community Associations
In 2021, the United States Congress passed the Corporate Transparency Act as another part of the 2020 Anti-Money Laundering Act. This act created a new beneficial ownership information reporting requirement as part the U.S. government’s efforts to monitor and prevent financial crimes, such as money laundering, and became effective January 1, 2024. Although one may not think this pertains to association finances, the definition of companies required to make this report is inclusive of community associations.
The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury, handles the submissions of the Beneficial Ownership Information (BOI). FinCEN defines Beneficial Owner as an individual who either exercises substantial control over the reporting company (in our case the association) or owns or controls at least 25% of the reporting company’s ownership interests (in our case at least 25% of the lots/units in the community). For associations, these Beneficial Owners are the members of the Board of Directors (who exercise substantial control) and any owner who owns at least 25% of the lots/units in the association, often a builder or developer.
In filing the report with FinCEN, the association must report for each Beneficial Owner (a reasonable argument can be made that the “beneficial owner” is the senior officer/President, but there are lawyers arguing that the “beneficial owner” are all directors who make decisions together) the following:
- The individual’s name
- Date of birth
- Residential address
- An identifying number from either a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of the identification document. An image of the identification document must also be included.
The beneficial owner needs to obtain a FinCEN ID. To do so, navigate to www.fincen.gov/boi, and go to “Create a FinCEN ID under “FILE”. This will create a 12-digit identifier that holds the four pieces of data above (including the image of the passport or driver’s license). The beneficial owner will provide the FinCEN ID to HOAMCO so that HOAMCO can affiliate the FinCEN ID to the association (in the CTA vernacular the association is the “Reporting Company”).
In the meantime, additional information can be found at the Financial Crimes Enforcement Network (FinCEN) website: www.fincen.gov/boi