CAI Lawsuit Filed to Challenge CTA - Includes Two CWMEB Clients

On September 10, 2024, the Community Associations Institute (CAI) filed a lawsuit against the U.S. Department of Treasury challenging the application of the Corporate Transparency Act (CTA) filing requirements as they apply to community associations.  The lawsuit was filed in the U.S. District Court for the Eastern District of Virginia (Alexandria division). A Motion for Preliminary Injunction was also filed with the suit seeking an emergency court order staying the CTA filing requirements for community associations pending a final decision of the Court.  That motion will likely be heard by the Court in mid-October. A copy of the suit is available at the CAI link at the bottom of this page.

In addition to CAI, named parties in the lawsuit include a number of individual community associations from a number of different states, including two CWMEB clients in Northern Virginia that volunteered to be part of the effort. Including different "sample" associations in the lawsuit is intended to illustrate to the Court the negative consequences that could be caused by CTA's filing requirements for organizations that are run by volunteers.

CWMEB is representing all the individual association parties in the case, with Brendan Bunn serving as counsel of record. Brendan is currently the President of the Board of Governors for the College of Community Association Lawyers and helped lead the CAI Task Force that spearheaded the challenge to the CTA, include the request of CAI's Board of Trustees to fund the suit.

The federal lawsuit challenges the application of CTA to associations on various legal grounds, including:

1. Exemption from the Corporate Transparency Act: Communities should be exempt from the CTA requirements given that they are considered "nonprofit organizations" under section 528 of the IRS code.
2. Improper Procedures as to Rulemaking: The FinCEN office issued a number of "FAQ" policy decisions without following notice-and-comment procedures required by federal law.
3. Arbitrary and Capricious: The suit argues that FinCEN improperly refused to exempt associations from the CTA without considering the relevant factors, making that action both arbitrary and capricious.
4. Constitutional Violations: The CTA violates’ constitutional rights under the Fourth, Fifth, and Ninth Amendments by requiring invasive personal disclosures without adequate privacy protections or sufficient cause.
5. Federal Power Overreach: CTA unlawfully intrudes on the authority of states to regulate corporate formation and governance, exceeding the federal government’s constitutional powers.
6. Equal Protection Violations: The act discriminates against community associations by not exempting them as nonprofit organizations, unlike similar entities under section 501(c) of the IRS code.

Please note that currently the Corporate Transparency Act's deadline for compliance remains January 1, 2025, and community associations should continue preparations for filing. While it is hoped the suit will be effective, it is not clear whether it will succeed at this time. Stay tuned to CAI's CTA webpage regarding the progress of the federal lawsuit now pending in the Eastern District of Virginia.

In the meantime, feel free to consult your CWMEB attorney regarding any questions you may have regarding the CTA and its applicability to your community.