The Corporate Transparency Act: Updates from FinCEN

As mentioned in prior communications from our firm, the federal Corporate Transparency Act (“CTA”), adopted in 2021, may start requiring most community associations to file a “beneficial ownership information” (or BOI) report by no later than January 1, 2025. The Financial Crimes Enforcement Network (FinCEN) periodically provides updates and clarification regarding frequently asked questions of it regarding reporting companies, exemptions, beneficial owners, reporting requirements, and many other issues.  Below please find a link to the most recent version of the Frequently Asked Questions answered by FinCEN:

https://www.fincen.gov/boi-faqs

Of particular interest to common interest community associations may be the following information recently provided by FinCEN (reprinted below from the FinCEN FAQ):

10. Are homeowners associations reporting companies?

It depends.  Homeowners associations (HOAs) can take different forms.  As with any entity, if an HOA was not created by the filing of a document with a secretary of state or similar office, then it is not a domestic reporting company.  An incorporated HOA or other HOA that was created by such a filing also may qualify for an exemption from the reporting requirements.  For example, HOAs recognized by the IRS as section 501(c)(4) social welfare organizations (or that claim such status and meet the requirements) may qualify for the tax-exempt entity exemption.  An incorporated HOA that is not a section 501(c)(4) organization, however, may fall within the reporting company definition and therefore be required to report BOI to FinCEN.

[Updated June 10, 2024]

13. Who is the beneficial owner of a homeowners association?

A homeowners association (HOA) that meets the reporting company definition and does not qualify for any exemptions must report its beneficial owner(s). A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25 percent of the ownership interests of a reporting company.

There may be instances in which no individuals own or control at least 25 percent of the ownership interests of an HOA that is a reporting company. However, FinCEN expects that at least one individual exercises substantial control over each reporting company. Individuals who meet one of the following criteria are considered to exercise substantial control over the HOA:

• the individual is a senior officer;
• the individual has authority to appoint or remove certain officers or a majority of directors of the HOA;
• the individual is an important decision-maker; or
• the individual has any other form of substantial control over the HOA.

[Issued April 18, 2024]

To find out more about the reporting process under the Corporation Transparency Act and FinCEN, please visit https://www.fincen.gov/boi.