The Corporate Transparency Act (“CTA”) was originally enacted in 2021 for the purpose of preventing money laundering, tax fraud, and other similar activities, by requiring corporations in the United States to file reports with the federal government regarding their beneficial owners. These reporting requirements are scheduled to take effect on January 1, 2024, and entities in existence as of this date, will be required to file their first report no later than December 31, 2024. Entities created after January 1, 2024, will be required to file their first report within 30 days of formation.
Although the CTA does not appear to target HOA’s directly, the overly broad and encompassing language of the CTA does not leave room to exclude HOA’s from its reach (with exceptions for associations organized as a tax exempt 501(c)(3) entities or similar tax-exempt entities). Although we understand there may be efforts in progress to specifically exempt HOA’s from the CTA, unless and until the CTA is modified to exclude HOA’s, most attorneys interpret the law to require reporting by associations.
So what type of information is an association required to provide in the report? Below is a non-exhaustive list of the required information:
- Legal name of association
- Trade name
- Current address (including both the registered agent and principal office)
- State where association was formed
- Taxpayer identification number
The initial report must also include the following:
- List of every beneficial owner in the association including full legal names, birth dates, current addresses, and one of the following:
- passport number
- driver’s license number
- state-issued identification document number
This begs the question of who is a beneficial owner? Generally speaking, a “beneficial owner” is any individual who, directly or indirectly, either exercises “substantial control” over the association or owns/controls at least 25% of the ownership interests.
An individual is deemed to exercise “substantial control” over an association if the individual (A) serves as an officer of the board; (B) has authority over the appointment or removal of any officer or a majority of the board members; or (C) directs, determines, or has substantial influence over important decisions made by the reporting association.
Based on the above definition, board members and officers would be deemed “beneficial owners” of the association. However, it is unclear whether other individuals within the association’s management structure would fall under this definition.
To the extent any individual or entity owns 25% or more of the units in an association, such person/entity would also constitute a beneficial owner under the second portion of the above definition.
We will keep an eye on this law and provide updates of any changes or issued clarifications, but absent a formal exemption for associations, make sure to consult with your legal counsel in early 2024 to ensure your community is compliant.
Please contact an Altitude attorney, at 303.432.9999 or at [email protected] with questions about the CTA.