Decoding the Corporate Transparency Act for HOAs and Association Management Companies

On March 4th, a federal court ruled the Corporate Transparency Act unconstitutional. That’s welcome news for the association management industry, which argues that volunteer-led civic organizations shouldn’t be held to the same requirements as other corporations and that the law unintentionally impacts community organizations. Still, as the situation remains fluid, we at CINC believe it’s important to be positioned for change without distracting from those driving change.

As the law is currently written, the Corporate Transparency Act filing deadline is January 1, 2025, and many HOA board members are understandably concerned about how the new requirements will impact their association. Perhaps your management company has heard from clients receiving noncompliance notices from opportunistic legal firms or board members apprehensive about disclosing personal information.

We encourage the association management community to speak up about the law’s uncertainty and lack of clarity (now’s a great time to contact your Senator). In the meantime, management companies should still understand their responsibilities under the Corporate Transparency Act if it indeed becomes written law. While we recommend consulting with your legal counsel, we aim to keep you informed.

Let’s start by looking at some commonly asked questions and where the Corporate Transparency Act stands today.

What is the Corporate Transparency Act?

The Corporate Transparency Act, passed by the U.S. Congress in 2021, aims to enhance national security and the financial system by detecting and reporting suspicious activities like money laundering or terrorist finance. 

Enforced by the Financial Crimes Enforcement Network (FinCEN), the law applies to corporations with less than $5 million in sales or revenue and fewer than 20 employees, excluding certain entities like banks, investment firms, and tax-exempt organizations.

Why does the Corporate Transparency Act apply to HOAs?

While the Community Associations Institute believes the law isn’t meant to apply to community associations, as written, it could affect over 350,000 volunteer-driven homeownership organizations in the U.S., including homeowners associations, condo associations, and housing cooperatives. 

These organizations, typically organized as state nonprofit corporations, are subject to Business Ownership Information (BOI) reporting requirements under the Act. Despite functioning similarly to nonprofit corporations, community associations often lack IRS nonprofit tax determination (501c), thus falling under the Act’s purview. 

What will HOAs need to do to stay compliant with the Corporate Transparency Act?

The reporting requirements are relatively easy to fulfill. At a minimum, here’s what associations must report annually to FINCEN.

• Business name
• Legal name of board members, birthdate, home address, and identifying number from a driver’s license, state I.D., or passport
• Individuals with “substantial control” (along with the same information listed above)

It’s currently unclear whether community managers or management companies qualify as individuals with substantial control.

When does the Corporate Transparency Act take effect?

The current filing deadline for existing corporations (established before January 1, 2024) is January 1, 2025. However, ongoing advocacy and legislative efforts aim to delay reporting requirements for small businesses or exempt HOAs from the requirements altogether, so the situation is still fluid.

What are the concerns around the Corporate Transparency Act and the CAM industry?

The Act will require management companies to submit an initial filing with FinCEN for each association and update the filings each time there is a change in board members or board member information. Collecting information from boards, filing, and submitting it through FinCEN’s website will be time-consuming for CAM companies and managers already stretched thin. 

Noncompliance could result in civil penalties of $500 per day, criminal penalties of up to $10,000, and up to 24 months in prison. It’s unclear which parties would be penalized, although it could be the association or their management company, depending on how their business agreement is structured. 

There is also a concern that requiring board members to submit personal information would deter community members from stepping into board positions when many associations already struggle to recruit board members.

What happens if there are changes to the HOA board?

If a board member moves or is replaced, community associations would be required to update the filing within 30 days.

How is the CAM industry pushing back, and how can I get involved?

The CAI is taking the following measures: 

• Requesting that community associations be exempt from the Act and the subsequent Beneficial Ownership Information (BOI) reporting requirements
• Requesting to delay implementation of the Beneficial Ownership Information (BOI) reporting requirements by having Senators co-sponsor S.3625 – Protect Small Business and Prevent Illicit Financial Activity Act (introduced by Senator Tim Scott (R-SC). S.3625 is the Senate companion of H.R. 5119 – Protect Small Business and Prevent Illicit Financial Activity Act, which was approved by the House on 12/12/23 by a vote of 420-1
• Urging confidentiality of the individual corporate filings of the Beneficial Ownership Information (BOI) reporting through the rulemaking process

Industry professionals are encouraged to join these advocacy efforts by urging their Senators to support exempting community associations, delay implementation, and limit access to corporate filings. Click here to send a pre-written message to lawmakers, which you can customize with your perspective around the unintended consequences of this law.

What steps is CINC taking to help customers navigate the new legislation and stay compliant?

We have added fields within our system to ensure that required information about board members or other “beneficial owners” is readily available. We’ve also enhanced permissions to restrict access to this information to keep board members’ data safe.

We are also evaluating what we can do to automate and streamline the filing of the reports. We will be adding the ability to capture the required information from the board members through WebAxis so that the management company does not have to enter it.

Finally, we’ll be working to keep you up to speed on the latest developments with tips and tools to help you prepare and educate boards. Stay tuned!