On January 1, 2021, the U.S. Congress enacted the set of federal statutes known as the Corporate Transparency Act (the “CTA”) which has the primary objective of protecting against money laundering through U.S. entities. Beginning on January 1, 2024, the CTA requires certain entities (which may include a homeowners association (“HOA”)) to report certain information to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) regarding their “beneficial owners” and “controlling individuals.” For entities formed before January 1, 2024, the information must be reported by January 1, 2025. For entities formed on or after January 1, 2024, the information must be reported within 30 days of formation.
Is an HOA a “Reporting Company?”
The CTA’s reporting requirements apply to a “reporting company,” which includes any corporation, limited liability company, and other similar entity created (for example) by filing a document with a secretary of state and registered to do business in the United States. Unless exempt under the CTA, an entity formed or registered to do business in the United States must file its “beneficial ownership information” within the specified timeframe. In most cases, an HOA will likely be considered a reporting company and will be required to file a report with FinCEN pursuant to the CTA.
Will an HOA Be Exempt from Reporting?
In most cases, an HOA will not be exempt from the reporting requirements under the CTA. That is, most HOAs are not within one of the three following categories of exempt entities: (i) certain charitable organizations created pursuant to the applicable section of the Internal Revenue Code (the “Code”), (ii) certain tax-exempt political organizations created pursuant to the Code, and (iii) certain trusts created pursuant to the Code.
What Information Must Be Identified in The Report?
A reporting company must provide to FinCEN: (a) its full legal name; (b) any trade name or assumed name; (c) address of its current principal place of business in the United States or the street address of its primary business location in the United States; (d) the jurisdiction of formation or registration; and (e) U.S. federal tax identification number or a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.
The report must also identify each “beneficial owner” and each “company applicant” by: (a) full legal name; (b) date of birth; (c) current residential or business street address; and (d) a scanned copy of an acceptable identification document (e.g., driver’s license or nonexpired passport).
A “beneficial owner” is an individual exercising “substantial control” over the reporting company (HOA) or who owns or controls at least 25% of the ownership interest in the reporting company (HOA). An individual exercises “substantial control” if the individual meets any of the following general criteria: (a) the individual is a senior officer (e.g., chief executive officer, chief financial officer, secretary, general counsel, etc.); (b) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (c) the individual is an important decision-maker; or (d) the individual has any other form of substantial control over the reporting company.
A “company applicant” is an individual who files the applicable formation or registration documentation of the entity (HOA) with a secretary of state or other similar office. If another individual directs or controls the filing of such documentation, that individual must also be listed as a company applicant. Company applicants are required to be reported only if the entity is formed or first registered to do business in the United States on or after January 1, 2024.
What Should an HOA Do Before January 1, 2024?
While specific preparations may vary by HOA, an HOA should familiarize itself with the CTA reporting requirements. An HOA should identify each individual within its organization who may be considered a “beneficial owner” and collect current contact information for each “beneficial owner.” An HOA should also develop a record-keeping process to collect, store, monitor, and track information required for the CTA reporting and filing obligations.
Questions? Advice?
If an HOA has questions, or is seeking advice, about the CTA, the HOA’s requirements for reporting under the CTA, or any other matters regarding the HOA, please contact the following attorneys in our office:
Kali Dahlquist – E-mail: kdahlquist@felhaber.com; phone: 612.373.8537
Fred Krietzman – E-mail: fkrietzman@felhaber.com; phone: 612.373.8418