This article originally appeared on the Davis Stirling Website.
By the end of 2024, most homeowner associations will need to file information online with the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. The 51-question initial report must be completed by January 1, 2025. The purpose of the reporting is to track suspicious activity, money laundering, and terrorist financing.
Reporting Company Defined. The definition of a “reporting company” includes all corporations, limited liability companies, some trusts, and other entities that are formed or registered to do business in the United States. Unless an exemption applies, a “reporting company” is any entity that is created by filing a document with the secretary of state, state corporation commission, or similar state office. Unfortunately, very few associations are exempt. FinCEN has confirmed that associations that are 501(c) organizations may be exempt.
Exceptions. Associations that meet all six of the following criteria may qualify for an exemption from the reporting requirements.
The association employs more than 20 full time employees, when applying the meaning of full-time employee provided in 26 CFR 54.4980H-1(a) and 54.4980H-3. In general, “full-time employee” means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer.
More than 20 full-time employees of the association are employed in the United States, as that term is defined in 31 CFR 1010.100(hhh).
The association has an operating presence at a physical office within the United States. “Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
The association filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales. If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.
The association reported greater than $5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
When gross receipts or sales from sources outside the United States, as determined under Federal income tax principle, are excluded from the association's amount of gross receipts or sales, the amount remains greater than $5,000,000.
Required Information. Associations must provide (i) full legal name of the association, (ii) physical address of the association, (iii) the association’s tax ID number. "Beneficial owners" must provide (i) their date of birth, (ii) their residential or business address, and (iii) a unique identification number from an acceptable document (e.g., passport, driver’s license) along with an image of the document.
Who is a Beneficial Owner? A beneficial owner is anyone who exercises substantial control over a company or owns or controls at least 25% of the ownership interests. For associations, all board members are considered beneficial owners. If a developer own at least 25% of the separate interests, he may be required to report.
How to Report? FinCEN has a BOI E-filing website where beneficial owners can report directly: https://boiefiling.fincen.gov/. Information for all beneficial owners must be submitted at the same time. There is no option on FinCEN’s website to save information and pick up where you left off. Third-party companies can file the beneficial owner information for a fee. Most of these companies can collect all beneficial owners’ information separately and then report it to FinCEN’s website once all information has been collected. Following is a company that handles reporting for homeowner associations:
CTA Review200 Main Street #204BHuntington Beach, CA 92648(714) 276-1711www.ctareview.comNatalie Stewartnatalie@ctareview.com
Deadline & Fines. Communities established before January 1, 2024, have until January 1, 2025, to submit their initial report. If an association fails file the required report, it is subject to a civil fine of $591 per day, up to $10,000, plus criminal fines or prison time for willful failure to report or filing erroneous reports.
Update Governing Documents. Associations should revise their bylaws, election rules, call for candidates/nomination forms, and code of conduct documents to mandate that board members cooperate in providing the information to comply with the CTA reporting. Contact our office for more information about updating governing documents to address CTA reporting.
Terminology. Thank you to Natalie Stewart of CTAReview.com for her "Glossary of Acronyms and Terms."
CAI Lawsuit. July 2024. On behalf of the more than 365,000 community associations and 2.5 million volunteer leaders that will be impacted by the CTA, the Community Associations Institute filed a lawsuit to exempt community associations from CTA's burdensome requirements. (In March 2024, a federal court in Alabama ruled that the Corporate Transparency Act is unconstitutional because it exceeds Congress' authority. (Nat'l Small Business United v. Yellen.) Unfortunately, the relief granted by the Alabama court is limited to the plaintiff in the case, the National Small Business Association. The judgment leaves the CTA intact against homeowner associations. The government appealed the case to the 11th Circuit, and CAI filed an amicus brief in support of the district court’s finding.)
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.
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