# Corporate Transparency Act: What HOAs Need to Know About the Latest Developments

The Corporate Transparency Act (CTA) has undergone significant changes in recent months, creating confusion for homeowners associations (HOAs) across the country. With reporting deadlines approaching and legal challenges ongoing, HOA board members need to understand their obligations under this important federal legislation. This article examines the current status of the CTA, its impact on HOAs, and what steps associations should take to ensure compliance.

## Understanding the Corporate Transparency Act and Its Purpose

The Corporate Transparency Act, enacted as part of the Anti-Money Laundering Act of 2020, represents one of the most significant changes to financial regulation in years. The primary goal of the CTA is to combat money laundering, terrorist financing, and other illicit activities by increasing transparency in corporate ownership structures.

Under the CTA, millions of “reporting companies” must submit beneficial ownership information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. These reports must disclose personal identifying information about the individuals who ultimately own or control these entities, including many HOAs.

## How the CTA Affects Homeowners Associations

For HOAs, the implications of the CTA are substantial. Many associations qualify as “reporting companies” under the act, requiring them to submit detailed information about their “beneficial owners” to FinCEN. This typically includes:

– Board members with significant decision-making authority
– Officers with substantial control over the association
– Individuals who own or control at least 25% of the entity

The required information is extensive and includes:
– Full legal name
– Date of birth
– Current residential address
– Unique identifying number from an acceptable identification document (such as a passport or driver’s license)
– Image of the identification document

This level of disclosure raises significant privacy concerns for volunteer board members who may be uncomfortable providing such personal information to a federal database.

## The Legal Rollercoaster: From Injunction to Enforcement

The implementation of the CTA has faced legal challenges that have created a confusing landscape for HOAs:

### Initial Injunction (December 2024)
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction in the case of *National Small Business United v. Yellen*. This ruling temporarily blocked FinCEN from enforcing the CTA’s reporting requirements, providing temporary relief for HOAs and other entities.

### Supreme Court Intervention (February 2025)
The legal reprieve was short-lived. In February 2025, following an appeal by the federal government, the Supreme Court lifted the nationwide injunction. This decision effectively reinstated the CTA’s reporting requirements, once again placing HOAs under the obligation to file BOI reports.

### Extended Deadlines
Recognizing the confusion caused by the legal back-and-forth, FinCEN extended the deadline for filing BOI reports to March 21, 2025. This extension provides HOAs with additional time to gather the necessary information and prepare their submissions.

## Current Compliance Requirements for HOAs

With the injunction lifted, HOAs must now focus on compliance with the CTA’s reporting requirements. The steps for compliance include:

1. **Determine if your HOA is a “reporting company”**: Most incorporated HOAs fall under the definition, though there are limited exemptions.

2. **Identify “beneficial owners”**: Identify all individuals who qualify as beneficial owners under the CTA’s definition, typically including board members and officers.

3. **Gather required information**: Collect the necessary personal information from each beneficial owner, including identification documents.

4. **File the BOI report**: Submit the report through FinCEN’s Beneficial Ownership Information Filing System before the March 21, 2025 deadline.

5. **Maintain records**: Keep documentation of compliance efforts and be prepared to update the report if beneficial ownership changes.

## Potential Exemptions for HOAs

Some HOAs may qualify for exemptions from the CTA’s reporting requirements. The most relevant potential exemptions include:

– **Large Operating Company Exemption**: Entities with more than 20 full-time employees, over $5 million in gross receipts or sales, and a physical office in the United States may be exempt. However, most HOAs do not meet these criteria.

– **Tax-Exempt Entity Exemption**: Organizations that qualify as tax-exempt under section 501(c) of the Internal Revenue Code and have filed appropriate returns may be exempt. Some HOAs may qualify if they’ve obtained 501(c)(4) status.

– **Inactive Entity Exemption**: Entities formed before January 1, 2020, that are not engaged in active business and have no foreign ownership may qualify. This is unlikely to apply to most functioning HOAs.

## Risks of Non-Compliance

The penalties for failing to comply with the CTA can be severe. Non-compliance can result in:

– Civil penalties of up to $500 per day while the violation continues
– Criminal penalties including fines up to $10,000
– Imprisonment for up to two years

These potential consequences make it essential for HOAs to take their CTA obligations seriously, even as legal challenges continue.

## Best Practices for HOAs

To navigate the complex requirements of the CTA, HOAs should consider the following best practices:

1. **Consult with legal counsel**: Work with attorneys experienced in HOA law to determine your specific obligations under the CTA.

2. **Educate board members**: Ensure all board members understand the CTA’s requirements and why providing personal information is necessary.

3. **Develop a compliance plan**: Create a systematic approach to gathering information, filing reports, and updating information when board membership changes.

4. **Monitor developments**: Stay informed about ongoing legal challenges and any new guidance from FinCEN.

5. **Document compliance efforts**: Maintain records of all actions taken to comply with the CTA to demonstrate good faith efforts in case of regulatory inquiry.

## Conclusion

The Corporate Transparency Act represents a significant compliance challenge for HOAs across the country. Despite ongoing legal challenges, associations must prepare to meet their reporting obligations by the extended March 21, 2025 deadline. By understanding the requirements, consulting with legal professionals, and taking proactive steps toward compliance, HOAs can navigate these complex regulatory waters successfully and avoid potentially severe penalties for non-compliance.

For HOA board members, staying informed about developments related to the CTA will be essential in the months ahead as this important legislation continues to evolve.