In December 2020, Congress passed the Corporate Transparency Act (the “CTA”), which aims to prevent and combat money laundering, terrorist financing, tax fraud, and other similar activities. This goal is intended to be achieved through the requirement of having corporations file a beneficial owner report with the Financial Crimes Enforcement Network (“FinCEN”). The beneficial owner report provides specified identifying information for each beneficial owner of the corporation.
- The CTA’s Application to Homeowners Associations and Condominium Associations
The CTA has been codified as 31 C.F.R. § 1010.380 and became effective on January 1, 2024. As stated above, the CTA requires reports of beneficial ownership information. 31 C.F.R. § 1010.380 requires each “reporting company” to file a beneficial owner report on an annual basis, starting with an initial report to be filed by January 1, 2025. 31 C.F.R. § 1010.380 (c)(1) defines a “reporting company” as a domestic reporting company that is either a (A) corporation, (B) a limited liability company, or (C) created by the filing of a document with a Secretary of State or any similar office under the law of a State or of an Indian tribe. Since Washington homeowners associations and condominium associations are created as non-profit corporations through the filing of articles of incorporation in the Washington Secretary of State’s office, they are deemed to be a “reporting party.”
31 C.F.R. § 1010.380(c)(2) includes a list of twenty-three (23) different exemptions for corporations that will not be designated as reporting parties. These exemptions apply to banks, credit unions, investment companies, government entities, tax-exempt entities, and inactive entities. None of these exemptions apply to homeowners associations or condominium associations and, therefore, homeowners associations and condominium associations are deemed to be reporting parties.
- Beneficial Owner Report
As stated above, each reporting party will need to file an annual beneficial owner report, which will provide specific identifying information for each beneficial owner of the corporation. 31 C.F.R. § 1010.380(d) defines a beneficial owner as any individual “who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least twenty-five (25) percent of the ownership interest of such reporting company.” This definition will include all members of the Board of Directors and the officers of the association.
It is unclear whether a management company will be included in the definition of the beneficial owner. 31 C.F.R. § 1010.380(d)(1)(C) states that an individual has substantial control of the reporting company if the individual directs, determines, or has substantial influence over important decisions made by the reporting company. Depending on the scope of the authority granted to a management company, the management company may be included as a beneficial owner.
In the beneficial owner report, a non-foreign reporting company must provide the reporting company’s: (1) full legal name; (2) any trade name or “doing business as” name; (3) complete current address; (4) the state the company was formed in; and (5) the IRS Taxpayer Identification Number (TIN). For each beneficial owner of the reporting company, the beneficial owner must provide their: (1) full legal name; (2) date of birth; (3) complete current address; (4) a unique identifying number, e.g., passport, driver’s license, state I.D.; and (5) an image of the document containing the unique identifying number.
- Reporting Violations
A reporting company which fails to submit or update a beneficial owner report may be subject to a civil penalty of not more than $500.00 a day, a criminal fine of not more than $10,000.00, or imprisonment for not more than two (2) years. The FinCEN also notes that nothing in the statute prohibits the application of other available criminal or civil provisions to the extent they are applicable.
- Recent Developments
On July 15, 2024, a new House bill, H.R. 9045, was introduced which would exempt homeowners associations and condominium associations from the reporting requirements of the CTA. The bill has been referred to a House committee, where it will undergo review and revision.
It is important that representatives of homeowners associations and condominium associations acquaint themselves with the requirements of the CTA and prepare the necessary reporting information accordingly. Given the potential severe penalties, we would recommend that homeowners associations and condominium associations have their attorneys review their association’s beneficial owner report prior to the report’s submittal to avoid any penalties or other less obvious issues. Also, you can reach out to your representative member of Congress to urge them to support the recent bill, which would exempt homeowners associations and condominium associations from these requirements.
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