By Melissa S. Doolan, Esq.
In 2021, Congress enacted the Corporate Transparency Act (“CTA”) as part of the Anti-Money Laundering Act of 2020. The purpose of the Act is to prevent money laundering, tax fraud and other illicit acts. At this point you are probably wondering what this federal law has to do with community associations. The short answer is not much except that the CTA does not automatically exempt every community association from its reporting requirements. Therefore, each community association must confirm whether it must comply with the CTA and how to comply with the CTA.
An incorporated association must comply with the CTA unless there is a specific exemption. The exemption most likely to apply to an association is if the Association is organized as an entity per 501(c) of the Internal Revenue Code (“IRC”) AND exempt from tax under 501(a) of the IRC. However, the vast majority of community associations will not be exempt from complying with the CTA as they are not tax exempt.
An individual who “directly or indirectly” exercises substantial control over the association or controls more than 25% of the ownership interest in the association must comply with the CTA. This means that all board directors of an association are required to comply with the CTA, because no one board director has any more control than another board director.
Each association must provide its: (i) full legal name, (ii) any tradename or dba, (iii) complete US address, (iv) Jurisdiction of formation (i.e. Arizona) and its (v) taxpayer identification number (“TIN”) to the Financial Crimes Enforcement Network (“FinCEN”), which is the entity that is responsible for implementation and compliance with the CTA.
Each board director must provide to FinCEN his/her: (i) full legal name, (ii) date of birth, (iii) complete current residential address, (iv) unique identifying number and issuing jurisdiction from a non-expired passport, non-expired state driver’s license or non-expired identification document issued by state, local or tribal government, and (v) copy of each director’s non-expired passport, non-expired state driver’s license, or non-expired identification document issued by state, local or tribal government showing the unique identifying number.
Associations that were incorporated prior to January 1, 2024 have until January 1, 2025. Any association that incorporates between January 1, 2024 and January 1, 2025 has 90 days to comply. Your association will complete the required forms, including any updates required, through the FinCEN website at https://www.fincen.gov/boi.
Compliance is not one and done. Updated reports are due within 30 days of any change. If a director resigns, a member is elected or appointed to the board, or the changes in the board, then an association must file an update within 30 days.
The penalties for non-compliance or refusal is a civil daily penalty of $500 per day or criminal fines up to $250,000 and prison term up to two years. If a board director refuses to comply, the association can be held civilly liable for the refusal of that board director.
FinCEN has identified who will have access to the information submitted and placed restrictions on when the information can be accessed. Federal, state and local governments will have access to the information along with a few other agencies with additional safeguards in place. A federal governmental agency can access the information anytime by stating the purpose for accessing the information. State, local or tribal government agencies must obtain a court order prior to access the information.
Our firm recommends that an association’s “call for candidates” or other communication seeking members to serve on the board, include a statement that anyone elected to the board must comply with the CTA and what information they must provide. We also recommend that associations amend their bylaws to add a board qualification that the member must comply with the requirements of the CTA or the member is not qualified to serve on the board. A member would automatically be excluded from sitting on the board, if he/she refuses to provide the information required by the CTA. This would ensure an association is not liable for the civil penalties based on that director’s refusal to comply with the CTA.
The bottom line is navigating the CTA will not be easy, but boards of association and their community managers must begin discussing how each association will comply with this federal law. Contact our office and the association’s accounting professional to discuss whether your association must comply with the CTA and how to ensure compliance.
The information provided herein is for reference purposes only, is general in nature, and is not intended as legal advice. For specific questions or legal issues regarding your association, please contact us at 480-219-3633.