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BLOG / 10.07.24 /Kenneth R. Jacobs

Update On Corporate Transparency Act Filing Requirements for Boards; Lawsuit to Exempt Community Associations Filed in Virginia Federal Court

CTA UPDATE: As we stated in our August 2024 E-Blast, efforts to exempt “homeowners associations” from the Corporate Transparency Act (“CTA”) have so far failed. Therefore, most co-ops, condos and homeowners associations in New York will need to file “Beneficial Ownership Forms” with FinCen (the Treasury Department’s Financial Crimes Enforcement Network) by January 1, 2025.

Below are our answers to questions that we keep getting about Board filing requirements:

Do Condo Boards Have to File? In our opinion, YES. There are technical arguments why New York Condos may not fall under the statute – for example, Condo governing documents are not filed with the state in order to organize; Condos are not specifically named as mandatory filers in FinCen’s FAQ’s (FinCen uses the phrase “homeowners associations” rather than “condominiums”); or Condos should be deemed to be exempt non-profits. But condo associations in most other states do fall under the umbrella of the CTA (so FinCen will resist a NY State-specific exemption); the IRS uses the term “homeowners association” globally to describe co-op corporations, condo associations and HOA’s (so there’s federal precedent in other statutes); and condos have been denied non-profit status under the Tax Code many times. So the arguments cut both ways. On balance, we don’t think Condos can escape the statute; therefore legally, we reluctantly recommend that Boards file.

The statute imposes significant fines and penalties against persons who willfully fail to file.  In practice, though, and given how many condo associations around the country are protesting the requirement, FinCen may well give a condo association a last chance to file without penalty the first time they question a Condo Board that pleads ignorance or uncertainty about whether they’re covered under the CTA.

Exemptions for Large Businesses.  If you happen to be part of an association with more than $5,000,000 in annual operating revenue and more than 20 full-time employees, then Congratulations, you are exempt from filing. There are a few of these in New York State.

What Do We File?  You will need to furnish at least five pieces of info: Name; Address; Birthdate; a “unique identifying number and issuing jurisdiction from an acceptable identification document such as a driver’s license or passport; and an Image of that document.

If the Reporting Company (i.e., the association) is filing for you, you have to furnish that info to the Reporting Company so that it can be uploaded with their filing. Alternatively, you can file independently with FinCen as an individual. FinCen will issue you a unique FinCen Identifier Number that you can substitute in place of providing your info to the Association. To create your own account, start here https://login. gov/create-an-account/. You’ll still need all the info that FinCen requires for companies filing on your behalf.

Who Will File for Me? Managing agents, law firms, and other entrepreneurs are already lining up to submit filings on your behalf. They will certainly charge a separate fee for chasing down all of the Board members and getting their info. It may make the most sense for management do to this, though, since the Reporting Company filings need to be updated when Board members change.

What is the Real-Life Impact of the CTA on Community Associations? Many Board members rightfully feel queasy about contributing to a vast federal database that will keep track of their personal information based solely on their participation as volunteers for their communities. They see no connection between the information they’re providing and preventing money laundering or terrorism (the stated purposes of the CTA) and worry about confidentiality.

On the other hand, two recent news stories about fraud and money laundering by Boards and management in Florida condos and HOA’s (HERE) show that community association finances can be abused. And ironically, we furnish similar information to doctors, insurance companies, department stores, and other persons seeking to verify our identities for other purposes. Governmental agencies (and others) also have easy access to any state’s driver’s license database.

In sum, the CTA is compelling us to consider in a new context the question of where to draw the boundaries for disclosure of what we consider private information to distant, abstract bureaucracies.

COMMUNITY ASSOCIATIONS INSTITUTE FILES FEDERAL LAWSUIT TO INVALIDATE THE CTA BENEFICIAL OWNERSHIP FILING REQUIREMENTS FOR HOMEOWNER’S ASSOCIATIONS.

Earlier this year we reported on a federal court in Alabama declaring the CTA unconstitutional (See our April 1, 2024, E-Blast), Unfortunately, that decision was limited to the plaintiffs in the Alabama case.

On September 10, 2024, the Community Associations Institute (“CAI”) filed a separate suit in the Eastern District of Virginia federal court, seeking to exempt community associations from the reporting requirements under the Act. The complaint asserts that the information reporting requirements for Boards under the CTA represent an unconstitutional invasion of privacy and an unreasonable “search” under the Fourth Amendment; that functionally, homeowners associations are “non-profits” in the sense contemplated by the CTA; that the need for individual Board members to provide personal information chills free speech and impairs associational rights; and that the requirements violate other federal legal and administrative rules. CAI is seeking a preliminary injunction against enforcement while the underlying complaint is heard. To read the full Complaint, go (HERE) and the motion for a preliminary injunction, go (HERE).