What Your HOA Should Know About The Corporate Transparency Act

As a community association board member, staying on top of the latest laws and regulations that impact community associations can be challenging. However, if there’s one law your association needs to be aware of in 2024, it’s the Corporate Transparency Act (CTA).

This federal ruling was created to promote transparency and reduce financial fraud, and it’s something that all community associations should be aware of. Keep reading to learn more about the CTA and what your association can do to help stay in compliance. 

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal law passed by Congress in 2021 that aims to promote transparency among corporations. Its purpose is to prevent money laundering, tax fraud, and other similar activities by requiring corporations in the United States to file reports with the federal government regarding their beneficial owners. 

The CTA applies to all corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.

As of January 1, 2024, community associations are subject to the Corporate Transparency Act (CTA) federal reporting requirements. Failure to comply with the Corporate Transparency Act can result in significant penalties, so community associations need to understand their obligations under the law.

Understanding the Corporate Transparency Act

The Corporate Transparency Act (CTA) defines a "reporting company" as a corporation, limited liability company, and any other entity created by the filing of a document with a secretary of state or any similar office in the United States. The law requires reporting companies to submit Beneficial Owner Information (BOI)  to the Financial Crimes Enforcement Network (FinCEN).

The CTA also requires reporting companies to update their beneficial ownership information within one year of any change.

How the Corporate Transparency Act Impacts HOAs

Reporting Requirements

Under the Corporate Transparency Act (CTA), community association board members must report the following information:

• Legal Name
• Address
• Date of Birth
• ID number (driver’s license or passport)

The Corporate Transparency Act defines a domestic reporting company as a corporation, limited liability company, and any other entity created by the filing of a document with a secretary of state or any similar office in the United States. For community associations formed in 2024, there will be a 90-day compliance period. Beginning in 2025, the filing period for new companies will decrease to 30 days.

Although this may seem intimidating, RealManage clients can rest assured that our experienced team will handle the filing process to ensure our associations remain compliant. 

Penalties for Non-Compliance

Non-compliance with the Corporate Transparency Act (CTA) can result in significant fines and penalties. The Act imposes civil penalties of up to $10,000 for each day of noncompliance, up to a maximum of $500,000. In addition to civil penalties, the CTA also establishes criminal penalties for willful violations, including fines of up to $500,000 and imprisonment for up to two years.

Best Practices for HOAs

To ensure compliance with the CTA, associations should establish internal controls and procedures to identify and report the required information. Boards should also consider seeking legal advice to ensure they are meeting all of the Corporate Transparency Act requirements. It is important to remember that the Corporate Transparency Act (CTA) represents a groundbreaking shift towards greater transparency in corporate ownership across the United States. 

Community associations should take the necessary steps to comply with the CTA and avoid potential fines and penalties. The board should consult with legal counsel to ensure they are meeting all reporting requirements under the law.

Key Points to Note:

• The initial filing must be completed within a year. It is advisable to initiate this process in May, following the conclusion of the tax season, to ensure timely submission.
• The Community Associations Institute (CAI) has provided a statement regarding this new requirement, which is available for reference here.
• All collected information will be safeguarded within FinCEN's database and only accessible to authorized entities.
• The Corporate Transparency Act (CTA) necessitates an initial BOI report, updates as required, and corrections when needed. Annual filings are not obligatory.
• Any modifications, additions, or rectifications to the filing must be completed within 30 days from the time the association becomes aware of the change. This includes things like a board member relocating to a new address or if there are changes in board membership.
• Existing regulations do not explicitly specify whether community managers or HOA management companies are included in this classification.

Final Thoughts

By understanding the implications of the Corporate Transparency Act (CTA) and taking proactive steps to ensure compliance, community associations can not only fulfill their legal obligations but also contribute to broader efforts to combat financial crimes and promote accountability within the community association industry.

As a dedicated partner in HOA and condo management, RealManage is committed to providing our clients with the resources and guidance necessary for navigating the complexities of the CTA.