The federal government passed a law that may have an impact on all Homeowners Associations and Board Members across the nation. The Corporate Transparency Act (CTA), part of the broader National Defense Authorization Act for Fiscal Year 2021, represents a significant shift in the U.S. approach to enhancing corporate accountability and combating financial crimes, such as money laundering and terrorist financing. This legislation requires certain business entities to report the identities of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. As this new regulation unfolds, Homeowners Associations (HOAs) and Condominium Owners Associations (COAs), along with management companies need to be prepared to navigate these changes.
Understanding the Corporate Transparency Act
The CTA aims to peel back the layers of anonymity that have traditionally shielded the true owners of U.S. entities, making it harder for individuals to misuse corporations, LLCs, and similar entities for illegal purposes. Under the CTA, companies must provide FinCEN with information about their beneficial owners, defined as individuals who directly or indirectly exercise substantial control over the entity (i.e. Board members) or own or control at least 25% of the ownership interests (i.e. Land Developers or Home Builders).
Impact on HOAs and COAs
For HOAs and COAs, the CTA introduces new responsibilities and considerations for associations and management companies. While the primary goal of the CTA is to target entities involved in illegal financial activities, legal experts and our partner attorneys believe that associations will be included in the act unless further exemptions are made.
Responsibilities for HOA and COA Board Members
Board members of HOAs and COAs, guided by management companies like Red Rock, will need to undertake several steps to comply with the CTA:
Determining Applicability: First, assess whether the CTA applies to your association. This involves understanding the specific criteria set forth by the Act, such as the type of entity, its ownership structure, and its exemption status. As of now, it appears that all associations will need to comply.
Identifying Beneficial Owners: Identify the individuals who qualify as beneficial owners under the CTA. This currently includes all Board members volunteering for their association.
Collecting Required Information: Collect detailed information from each identified beneficial owner, including name, address, date of birth, and an identification number (such as a driver's license or passport number).
File with FinCEN: Submit the collected beneficial ownership information to FinCEN by the required deadlines. Ensure ongoing compliance by updating this information whenever there is a change in beneficial ownership (or Board member).
Maintaining Records: Keep records of the information submitted to FinCEN and any correspondence received. This will be crucial for demonstrating compliance if ever required. The law states that all beneficial owner information will be private and follow IRS privacy standards.
Understanding Penalties for Non-Compliance: The act calls for penalties for failing to comply with the CTA, which can include substantial fines of $500 per day and even jail time for willful violations.
What should you do?
At Red Rock, we are currently tracking this as the law is being refined. The compliance date is set for January 1, 2025, which gives us time. If HOAs and COAs continue to be included in the CTA, we are currently planning for a Q4 compliance campaign. We are also working closely with our partner attorneys to stay up-to-date and the best way to comply. Red Rock stands ready to assist and ensure that board members may seamlessly meet these new challenges head-on while ensuring our communities adhere to the letter of the law.
If you have any questions about the CTA or if you're interested in learning more about how Red Rock may help, feel free to reach out to us at support@gowithredrock.com or give us a call at 888-757-3376.