The Corporate Transparency Act – Are Homeowner’s Associations Required to Comply?

The Corporate Transparency Act (“CTA”) is a federal law designed to combat financial crime by requiring a corporation to disclose certain information about the Reporting Company, its Beneficial Owners, and (if applicable) the Company Applicants to the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Under the CTA, a homeowner’s association (“HOA”) and its directors may be required to file certain information with FinCEN to comply with the CTA. While several court cases are currently being litigated and HOA advocates are arguing for an HOA exemption, an HOA subject to the CTA must meet the reporting requirements in a timely manner to avoid seemingly draconian consequences. It is important to note that, as the CTA is currently written, most HOAs will not be able to claim an exemption. An HOA should consider contacting a community association lawyer for updates on filing requirements and whether any amendments to the HOA’s governing documents should be adopted.

The HOA as a Reporting Company

If an HOA subject to the CTA was created by the filing of articles of incorporation or a certificate of formation with the office of the Texas Secretary of State, then the HOA is considered a Reporting Company. The deadline for a Reporting Company to file an Initial Report under the CTA depends on when the Reporting Company was formed/incorporated. If the Reporting Company was formed/incorporated before 2024, then the Initial Report must be filed no later than January 1, 2025. If the Reporting Company is formed/incorporated in 2024, then the Initial Report is due ninety (90) days after the entity was formed/incorporated. If the Reporting Company is formed/incorporated in 2025 or later, then the Initial Report is due thirty (30) days after the entity was formed/incorporated. The Initial Report must include information regarding the Reporting Company, the Beneficial Owners, and (if applicable) the Company Applicant. A Reporting Company must submit the following information about itself: (1) the entity’s name, as well as any trade names or DBAs, (2) the business street address, (3) the Taxpayer Identification Number, and (4) the jurisdiction of formation.

Based on the language of the CTA, nearly every HOA would be considered a Reporting Company unless any exemptions apply. Please note, however, that under the CTA, an HOA may be exempt from filing under the tax-exempt entity exemption if they are considered a 501(c)(4) social welfare organization. An HOA should consult with its CPA or other accounting professionals to determine whether they qualify for the tax-exempt entity exemption.

The Board as Beneficial Owners

Under the CTA, a Beneficial Owner is an individual who either directly or indirectly: (1) exercises substantial control over a Reporting Company, or (2) owns or controls at least twenty-five (25) percent of a Reporting Company’s ownership interests. A Beneficial Owner must be an individual, not an entity. Although HOA Directors do not have any ownership interest in an HOA, Directors are most likely considered Beneficial Owners because such individuals exercise substantial control over the HOA and have important decision-making abilities on behalf of the HOA, as evidenced by most HOA Declarations or Bylaws.

The Beneficial Owners must report the following information: (1) full legal name, (2) date of birth, (3) current residential address, (4) a unique identification number such as a driver’s license number or a passport number, and (5) a digital copy of the identifying document. Alternatively, the Beneficial Owner can submit their information on the FinCEN website and receive a FinCEN ID. The Beneficial Owner can then give their FinCEN ID to the HOA for its Initial Report.

Company Applicants

A Company Applicant is the individual who directly files the certificate of formation that creates the corporation with the Secretary of State. A Reporting Company must report their Company Applicant(s) only if the Reporting Company was formed/incorporated in 2024 or later. A Company Applicant must report the following information: (1) full legal name, (2) date of birth, (3) current business address, (4) a unique identification number such as a driver’s license number or a passport number, and (5) a digital copy of the identifying document.

Changes/Updates to Reported Information

Under the CTA, an HOA must file an updated report within thirty (30) days after any change to information previously submitted to FinCEN. Examples of changes that would trigger an update to the information submitted by the HOA may include but is not limited to an addition or removal of a Director, or a change in the business address of the HOA. Further, it is the Beneficial Owner’s responsibility to update any required information previously submitted to FinCEN within thirty (30) days of the date of change. When a Beneficial Owner updates the information associated with their FinCEN ID, that update is automatically linked to the HOA and will not require the HOA to file an updated report.

Potential Penalties with Failure to Report

At this time, it is unclear how FinCEN will monitor and enforce the CTA against HOAs. Under the CTA, an individual who willfully provides false or fraudulent information, or willfully fails to report complete or updated Beneficial Ownership information faces a civil penalty of up to $500 per day (the civil penalty amount is adjusted annually for inflation which now brings the civil penalty up to $591 per day) the violation continues or is not remedied, and a criminal fine of up to $10,000, and/or two years imprisonment.