The Corporate Transparency Act (CTA), effective January 1, 2024, mandates that certain entities report information on beneficial ownership to the Financial Crimes Enforcement Network (FinCEN) in an effort to combat money laundering, terrorist financing, and other financial crimes.
This law impacts various entities, including some homeowners associations (HOAs), by requiring them to disclose specific ownership and management details if they meet the criteria for reporting. While HOAs that are considered "large operating companies" (those with more than 20 employees, over $5 million in gross receipts or sales, and an operating presence at a physical office) are generally exempt, smaller HOAs that do not meet these criteria may be required to file, creating new regulatory challenges.
One of the primary challenges HOAs will face under the CTA is identifying whether they fall under the reporting requirements. For many HOAs, this determination process may be complex, as HOAs often have unique organizational structures. HOAs without significant employees, gross receipts, or sales may fall within the reporting requirements because they do not meet the exemption criteria, which is typically designed for large operating companies. This requires HOAs to carefully review their financial and operational status and seek legal guidance to understand their obligations under the CTA.
A further challenge lies in accurately gathering and reporting beneficial ownership information, especially since many HOAs operate with volunteer boards of directors who may not have extensive experience with regulatory compliance. The CTA requires reporting on individuals who directly or indirectly control 25% or more of the entity, a potentially ambiguous requirement for HOAs with large membership bases. In addition, because board membership and organizational roles within an HOA can change frequently, HOAs may face the added burden of ensuring that ownership information is kept up-to-date and reported accurately to avoid potential penalties for non-compliance.
Lastly, HOAs may experience increased administrative and financial burdens associated with the CTA. Complying with the new reporting requirements will likely necessitate resources for legal assistance, documentation, and tracking changes in beneficial ownership. Smaller HOAs may find this especially challenging, as they typically operate on limited budgets and depend on volunteer labor for governance. This added compliance requirement could result in increased membership fees or the need for additional fundraising efforts to cover costs, impacting homeowners financially and potentially leading to internal conflicts or dissatisfaction among association members.