CTA FILING QUESTIONS ANSWERED AND UPDATE
We all know that “time flies when you’re having fun“. It also accelerates at warp speed when you’re anticipating a deadline for an undesirable task. Condominium associations are facing such a deadline January 1, 2025. That is when most associations must comply with the Corporate Transparency Act, (CTA), requiring them to identify the people who own and control them.
The vast majority of associations will have to file for the first time by January 1 of next year. With that approaching deadline in mind, we’ve compiled a list of frequently asked questions to clarify the law and provide guidance to association board members who must comply with it.
Who are the beneficial owners in a condominium and homeowner’s association, and who must be identified in the CTA report? The regulations identify beneficial owners as individuals who exercise “substantial control,” directly or indirectly, over a reporting company (the association). In an HOA, the beneficial owners are the board members, who are its elected decision makers. Property managers, accountants, and attorneys are not considered to be beneficial owners, because they advise the governing boards but do not themselves make decisions or otherwise exert control over the association. Residents serving on volunteer committees likewise would not have to be reported as beneficial owners. Individuals who own more than 25 percent of the units must also be identified as beneficial owners. So, developers of some condominiums may have to be included in the Beneficial Ownership Information Report (“BOIR”), at least for a while.
Can the board simply list the president as a representative of the board in the BOIR? No, all beneficial owners – that is, all members of the board ꟷ must be reported as beneficial owners.
What information do reporting companies have to provide? The BOIR has two sections, one for the association, the other for beneficial owners. For the association, you are required to provide only three pieces of information: The association’s full name, its address and its tax ID number.
For board members, you must report: Their name, address, and date of birth. That’s all. Social Security numbers, email addresses, phone numbers, income – none of this information is required. In addition, you must provide a photocopy of the individual’s driver’s license, passport or another government-issued ID. The “problem solved” in this issue discusses what to do if board members refuse to provide the information required for the filing.
Are any associations exempt from the reporting requirement? There is an exemption for “large operating companies,” defined as those that have more than 20 full-time employes and report “gross receipts or sales” totaling more than $5 million. Assuming association dues are considered to be “gross receipts” for community associations there may be a very small number of associations that meet this requirement. The vast majority will not qualify for the exemption.
How do you file the report? There are a few options: You can complete the form electronically on the FinCEN site; or you can download a PDF form, fill it out off-line and submit it to FinCEN via mail or email. MEEB has developed a portal located on our website at www.meeb.com, which any condominium association may utilize. This portal transmits data directly to FinCEN and is free to utilize.
Electronic filing is probably most efficient and easiest to use. The manager, a board member or anyone the board designates can collect the information from board members, complete the form and submit it on the board’s behalf. The individual submitting the form for the association is required to note his/her name and email contact or telephone number. No other identifying information is required for the person filing. Associations can also retain a third party to handle the filing for them. Some management companies and some accounting firms are offering this service or may begin offering it. Boards relying on third parties for the BOIR filing should make sure they have the appropriate safeguards in place to protect the information they collect.
Are there fees for filing the reports? No.
Are associations required to file these reports annually? There is no periodic filing requirement. Associations must update the reports only if their information changes, for example, if trustees resign or new trustees are elected. If the information on a trustee’s driver’s license changes, the form would have to be updated. However, simply obtaining a new license when the old one is lost or expires would not trigger a refiling.
Are there penalties for failing to file the BOIR? Yes, and they are significant: A civil penalty of $591 per day for failing to file; A criminal penalty of $10,000 plus two years in prison if the violations are deemed to be “willful.” Intentionally refusing to file would be deemed “willful;” filing late or accidentally submitting erroneous information almost certainly would not. While Association should comply and do so in good faith, there is no reason to believe FinCEN is going to aggressively prosecute associations for missing deadlines or submitting incorrect information on their BOIRs. Compliance won’t be difficult and liability risks for associations will probably be minimal.
Will managers who file BOIRs incur liability for erroneous information? Penalties are imposed for “willful” violations. While trustees who intentionally submit erroneous information may face charges, managers who submit information the trustees provide almost certainly will not.
Are the BOIRs ‘official’ association records that owners are entitled to see? Probably not, although you never know how a court would rule. Boards might be able to respond to an owner’s demand by providing a redacted form, listing the names of the trustees but eliminating their personal information. If the issue arises, the board should discuss it with the association’s attorney.
How long will it take to complete the BOIR filing? This is not a complicated report and should not take long to complete. However, you may encounter unexpected delays, the most likely being board members who provide information slowly or not at all. Boards can begin collecting beneficial ownership information whenever they like. Collecting information is likely to be the most time-consuming part of the process. You can do that easily at the association’s annual meeting, which is when any changes in the board will occur. Someone can photocopy and record information from the driver’s licenses of new and existing trustees at that time. The BOIR can be completed after that and can even be done electronically at the meeting.
Because this is a new law there are many unknowns and that uncertainty can be unsettling.
For the board members and managers who are worrying about compliance, a French adage may provide some reassurance. It says, “There is no sea to drink,” which means, it’s not going to be that hard. MEEB attorneys are available to assist and guide any associations or boards that have any questions. They can be reached at law@meeb.com.
As clients begin to complete their filings MEEB will continue to monitor any CTA -related developments. MEEB has filed a suit in federal court seeking judgment that the law does not apply to unincorporated associations and trusts. Most Massachusetts community associations are not incorporated, so if this suit is successful, many associations may not have to file. A Federal District Court in Alabama ruled in March that the CTA is unconstitutional and barred its enforcement against members of the National Small Business Association, the successful plaintiff in that suit. The Community Associations Institute (CAI), which has been lobbying to exempt HOAs from the law, is also considering a suit challenging its constitutionality. There is also legislation pending in the Senate that would repeal the CTA, while a measure introduced recently in the House would exempt community associations from its reporting requirements. MEEB will send an alert if there are developments in any of the above.