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Client Alert: Corporate Transparency Act: New Reporting Requirements Impacting Community Associations

The goal of the U.S. Corporate Transparency Act (CTA) is to strengthen reporting and transparency of business entity ownership and control in the United States for law enforcement purposes, such as to reduce instances of money laundering, tax fraud, and other evils, by requiring reporting of certain information to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). Unfortunately, the statute’s broad definition of companies includes any community association that is registered with its state corporation commission. Many community associations are formed as nonstock corporations and are therefore covered by the statute, unless a specifically enumerated exemption applies. Community associations that are not incorporated might not have to file, but it would be prudent to check with FinCEN, or the Association’s legal counsel, each year to ensure. Found on FinCEN’s website, the Small Entity Compliance Guide, in particular, provides guidance on whether an entity, incorporated or not, may be a reporting company subject to the CTA’s requirements. The website is a helpful resource and can be accessed here.     

Each covered entity that exists as of December 31, 2023 must file an initial report by no later than December 31, 2024. The initial reports to FinCEN must include: (1) full name of the reporting company; (2) any trade name or “doing business as” name(s) of the reporting company; (3) complete current address, including the state; (4) the Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) including the Employer Identification Number (EIN); and (5) the beneficial owner information.

The most onerous part of the reporting will be reporting and updating all the information of the individual “beneficial owners.” A beneficial owner is anyone who: owns a 25% stake or exercises substantial control over the entity.  According to the rule, an individual exercises substantial control of an entity if the individual: serves as a senior officer, has authority over appointment or removal of any senior officer or majority of Board members, or has any other form of substantial control over the entity.  For most community associations, this likely means that all Directors will be considered to be beneficial owners for purposes of the CTA.  

The report must include the following information for every “beneficial owner” of the reporting company, including: (1) the full legal name of the individual; (2) a complete current residential address; (3) unique identifying number and the issuing jurisdiction (from either a non-expired passport or non-expired state issued identification document); and (4) a copy of the document which includes the unique identifying number. The CTA law as passed by Congress sharply limits access to this database of information to law enforcement personnel.

Community associations covered by the CTA will need to update their report each time there is a new beneficial owner.  This likely will be any time new Board members are elected or appointed.

Interested parties can go to Whiteford Taylor Preston, LLP | Client Alert: A Primer on the Corporate Transparency Act: Highlights of Additional Requirements to Conduct Business for more information.

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The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.