The Corporate Transparency Act: Are HOAs Exempt?

The homeowners’ association (HOA) industry is increasingly under regulatory pressure to change how it operates. Most recently, the federal government enacted the Corporate Transparency Act (CTA) in 2024, which affects community association board members across the United States. How are HOAs impacted? Why? And are there any exemptions HOAs need to be aware of? Read on to learn what the CTA is, how it affects you, the deadline for filing, and whether or not your HOA is exempt. 

What is the Corporate Transparency Act?

The Corporate Transparency Act is a new law enacted by Congress as part of the Anti-Money Laundering Act of 2021. Administered by the Financial Crimes Enforcement Network (FinCEN), the law aims to increase governmental awareness of who owns and operates businesses, including homeowners’ associations, in the United States. Part of an effort by Congress to help combat money laundering, financial fraud, and terrorism financing, this law is designed to prevent masking of ownership through shell companies or other legal means.

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How Does the Corporate Transparency Act Affect Community Associations?

While the CTA wasn’t intended to target community associations, HOAs are subject to its requirements since many are businesses that have filed Articles of Incorporation with a secretary of state. The government wants to better understand who owns or are the decision makers of businesses nationwide. Therefore, community association board members are required to submit specific personal information to the federal government. Seek advice from an association attorney to understand your community’s legal requirements.

Who Must File Under the Corporate Transparency Act?

Reporting companies, company applicants, and beneficial owners must file under the CTA.

Reporting companies: 

A reporting company is identified as a corporation, limited liability company, or any company created by filing a document with a secretary of state or any similar office. Most community associations file Articles of Incorporation with their secretary of state’s office or similar agency.

Company applicants:

For companies created after January 1, 2024, the company applicant is the person or persons (no more than two) who directly filed the documents that created the company (association) or the person who’s primarily responsible for directing or controlling the filing of the documents creating the association.

Beneficial owners:

Beneficial owners are “any individuals” who, directly or indirectly, exercise “substantial control” over a reporting company or own or control at least 25 percent of the company. “Substantial control” is defined as someone who:

·         Is a senior officer

·         Has authority to appoint or remove certain officers or a majority of directors

·         Is an “important decision maker”

·         Has any other form of substantial control (directly or indirectly) over the reporting company.

Basically, any officer or director of an association is considered a beneficial owner.

What is the 2024 Corporate Transparency Act Requirement?

Reporting companies, company applicants, and beneficial owners are required to submit information to FinCEN by January 1, 2025. Failure to comply may lead to significant fines and penalties. The information required includes:

For reporting companies

·         Entity name

·         Trade name

·         Address of principal place of business

·         State

·         IRS Taxpayer Identification Number (TIN) or Employer Identification Number (EIN)

For beneficial owners (beneficial owner information)

·         Full legal name

·         Date of birth

·         Residential address

·         Unique identifying number, such as state or local ID, driver’s license, U.S. passport

·         Upload an image of the identification document just mentioned

Check with your association attorney for questions about required information and documents.

What Are the Corporate Transparency Act Exemptions?

Most community associations are required to comply with the terms of the CTA. However, there may be some exceptions for a select few. 

For a reporting company to qualify for an exemption, it must be a larger business (or community association) with 20 or more employees and $5 million in annual receipts or sales. Congress also specifically exempted 23 types of entities that are subject to other significant regulatory guidelines, including:

·         Unincorporated associations

·         An association qualified as tax-exempt under section 501(c) of the federal IRS code

For a business owner to be considered exempt, they must be an agent or “act on behalf of a beneficial owner.” Community association managers, for example, would qualify for this exemption.

Industry-wide, the Community Associations Institute (CAI) has been advocating to legislators and leaders that community associations should be exempt. CAI representatives have also met with officials at FinCEN and even filed suit in court to exempt community associations. Currently, no regulatory or legal changes are expected to interfere with the January 1, 2025, compliance deadline. 

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FAQs About HOAs & Politics

While the Corporate Transparency Act is important and requires action by association board members, another prevalent topic for HOAs is political activity within the community. In our latest ebook, “FAQs: HOAs & Politics,” John Krueger, Associa’s vice president of government affairs, shares answers to some pressing questions, including can I display political signs on my HOA property? And what are the rules for hanging American flags in an HOA? Plus, he details why your HOA should monitor legislative activity and consider engaging in government affairs. Download it now to learn more!