The Corporate Transparency Act

I will lead with the bad news:  there is still a great deal of uncertainty when it comes to The Corporate Transparency Act (“CTA”), which was enacted by Congress January 1, 2021 for the purpose of preventing financial crimes like money laundering, corruption, tax fraud and financing of terrorism.  In the simplest terms, it creates an ongoing requirement for a community association to file information about its directors and officers while imposing hefty fines for failure to comply.  The good news is twofold:  (1) many organizations have already challenged its enforcement, including CAI which has filed a lawsuit specific to enforcement against community associations and (2) while somewhat onerous, the filings required to keep an association compliant with the CTA are not complex or difficult.

The CTA creates a database of “Beneficial Ownership Information” (BOI) that became effective January 1, 2024 for any corporate entity that is not exempt.  As you probably have heard, under the current CTA language, most mandatory membership owners associations, such as homeowners associations, condominium associations or property owners associations, are not exempt entities and must comply with the requirements of the CTA.   

So, what does that mean for your association? Effective January 1, 2024, any “new” mandatory membership owners association (“Association”) created by filing articles of incorporation with the Georgia Secretary of State was required to file with Financial Crimes Enforcement Network (“FinCEN”) the following information: its business name, current address, state of formation and EIN, as well as the name, birth date, address and government issued photo ID (such as a driver’s license or passport) of every direct or indirect “Beneficial Owner” of the entity.  It is likely that every officer of an association is deemed a Beneficial Owner and must provide the above information to the filer of the BOI report, and every member of the board of directors of an Association who is not an officer likely will be subject to the same requirements.  An owner of 25% or more of an entity also is deemed a Beneficial Owner, and homeowners in smaller communities may need to provide BOI information even if they do not serve as a director or officer of the Association. 

The BOI report must be submitted to FinCEN through an electronic filing on its website. Currently, there is no charge for submitting the filing directly to FinCEN. The FinCEN database is secure but may be accessed by Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain BOI information for authorized activities related to national security, intelligence, and law enforcement.  While it may be unlikely that any Federal, State, local, Tribal officials or certain foreign officials would request access to an Association’s BOI information, Associations are currently required to comply with the CTA.

Associations that existed prior to the January 1, 2024 deadline are given until January 1, 2025 to submit the initial BOI report to FinCEN but are not required to submit information about the applicant who initially formed the Association.  Associations created on or after January 1, 2024 have ninety (90) days from the date the entity was formed with the Georgia Secretary of State to submit the initial BOI report to FinCEN and are required to submit additional information about the individual who initially formed the Association.   Associations which are created on or after January 1, 2025 will have thirty (30) days from the date the entity was formed with the Georgia Secretary of State to submit the initial BOI report to FinCEN and are also required to submit additional information about the individual who initially formed the Association.

While it is not currently clear how often a BOI report must be updated with FinCEN, any change in the Beneficial Owner(s) would result in a need to update that information within thirty (30) days of the date of said change.  For example, every annual meeting at which new directors and/or officers are elected would trigger an updated BOI report that would need to be submitted to FinCEN.  It is likely that this ongoing obligation will be the hardest part for most associations to comply with as it theoretically requires a new notice for every resignation and appointment, vote, or other transition of directors or officers.

The penalties for noncompliance with the CTA are hefty: $500 a day up to $10,000, and up to 2 years in jail, so, while compliance will be onerous for most Associations, the penalties might be worse.  Please note that, as far as we can tell, no such fines have been levied against any community association to date and it is likely that multiple rounds of notices would be presented to an association prior the imposition of a fine.

In conclusion, it is best to begin prepping for these filings well ahead of the January 1, 2025 deadline to ensure that your association is ready to timely file the required information.  It is our fervent hope that CAI’s challenge will successfully exempt community associations from the CTA requirements given the unlikelihood that a community association would be the source of the crimes which the CTA is meant to prevent.  Until that time, however, it is better safe than sorry as no one needs the threat of fines or jail time hanging over their heads.  Please note that there is great information about CTA and its impact available on CAI’s website.