The Corporate Transparency Act and What does if mean for HOAs and COAs
Overview
The Corporate Transparency Act was put into law in 2021 and its purpose was to combat illicit activity of money laundering, tax fraud, and financing for terrorism by way of capturing more ownership information for United States businesses who are operating in or accessing the country’s market. With this new legislation any businesses which meet certain crucial criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides details identifying individuals who are associated with the company and as of right now Homeowners Associations (HOAs) and Condominium Associations (COAs) and their board falls into this category and will need to comply with the BOI reporting requirements set by the Financial Crimes Enforcement Network (FinCEN)
There are two types of reporting companies which are required to submit BOI reports:
- Domestic reporting companies such as corporations, LLCs and other entities formed through filing with a secretary of state
- Foreign reporting companies which are registered to conduct business within the United States through filing with a secretary of state or an equivalent office
The BOI reporting program filing deadline for existing corporations is set for January 1, 2025.
Individuals are considered by FinCEN to “exercise substantial control” over an HOA or COA if the individual meets certain criteria. A few of these are:
- Individuals with rights associated with financings or directing intermediary entities
- The Individual is influential and votes on decisions or operations of the entity
- The individual holds a senior office with responsibilities
What happens if you don't file
Individuals who do not submit the necessary documentations can be fined up to $10,000 per violation and/or imprisoned for a maximum of two years. If your organizations fails to file or if you port late, a civil penalty maybe levied against the company of not more than $500 per day per violation. In regards to money of a HOA or a COA these can become quite steep quite quickly.
Now what does this mean
With the way the Corporate Transparency Act is written and the current provisions of the FinCEN guidelines, an incorporated HOA or other COA which was created by filing withe the secretary of State is required to file with the FinCEN a report listing the "beneficial owners". Several organizations are filing suits in hopes to overturn this ruling for HOAs and COAs. If you are a board member and would like some guidance of what all this means for you or your HOA or would like to know how to file feel free to reach out to PMI Cross Timbers and we would be happy to help.
