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Q&A for Utah HOAs on the Corporate Transparency Act
The Corporate Transparency Act (CTA) is a major compliance tool that will foster more transparency and accountability for corporations across the country. But any time a new federal law comes into effect, it brings with it confusion and fear. Does it apply to you? What actions do you have to take? How much is it going to cost?
Whether you’re a board member seeking clarity or a homeowner invested in the well-being of your community, we hope that we can shed some light on a murky subject with some plain talk answers to these and many other questions you haven’t thought to ask… yet.
Q) What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) is a U.S. federal law aimed at combating financial crimes by requiring certain companies to disclose ownership information to the Financial Crimes Enforcement Network (FinCEN). It’s designed to improve transparency by creating a more transparent corporate structure in the U.S.
Q) I’ve never heard of FinCEN, is that the federal government?
Yes, FinCEN (Financial Crimes Enforcement Network) is a bureau of the U.S. Department of the Treasury. FinCEN’s mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.
Q) Do Community Associations have to file for CTA compliance?
All corporate entities, including LLCs in the U.S. need to file a Beneficial Owner Information Report (BIOR), unless they meet one of the 23 exception criteria the law lays out. The majority of community associations operate through formal entities, such as corporations or LLCs, and thus come under the purview of the CTA, meaning your association must take action to ensure compliance and avoid potential penalties.
Q) We’re a nonprofit corporation. Does that mean we are exempt from the CTA?
Not necessarily. While some nonprofit organizations such as 501(c)(4) or 501(c)(7) are exempt from filing under the CTA, most community associations, even if they are structured as nonprofit corporations, are not tax exempt and will most likely be required to file. We recommend you consult with us prior to the filing deadline if you believe your association’s status makes you exempt. We’ll help assess next steps and discuss whether input from your legal counsel may be needed.
Q) When do we have to file our CTA report by?
Keep an eye on the clock as the deadlines for filing the reports are fast approaching, with associations formed before January 1, 2024, needing to comply by January 1, 2025. Companies created after 1/1/24 must file within 30 days of forming the entity.
Q) How is the CTA different from the Utah State HOA Registry?
While both the CTA and the Utah State HOA Registry are instituted for oversight and transparency, they serve distinct functions and are governed by different bodies of law. The state registry is not a replacement for CTA filing. The Utah state registry only requires the contact information of the registered agent or manager, whereas the Corporate Transparency Act requires specific information on all board members, as well as any majority ownership owners.
Q) I am not on the Board of My Association. How will the CTA affect Homeowners?
Even if you are not a board member, the CTA can impact you as a homeowner indirectly. The association’s compliance with the CTA involves administrative responsibilities that might incur costs, potentially influencing the association’s budget. Non-compliance could lead to penalties that might also impact the association. Therefore, it’s in every homeowner’s interest that the association manages these new reporting obligations effectively and in compliance with the law.
Q) What happens if we don’t file a CTA report?
The consequences of non-filing or delayed reporting can lead to substantial fines of $500 per day up to $10,000 or even harsher penalties like up to 2 years imprisonment. It’s crucial for associations to understand their filing obligations and meet them to avoid these consequences.
Q) What does it cost to file for the CTA?
Currently, companies can e-file for free on the FinCEN website (https://boiefiling.fincen.gov/) However, many community associations are opting to set up a 3rd party compliance agreement. At HOA Strategies, we understand how important compliance is for our associations, which is why we’ve invested in SOC2-compliant software to help manage the process for you. These systems keep track of compliance information and provide a convenient way to allow members to update their information when it changes, to help maintain long term compliance. For community associations, this is particularly advantageous as the board makeup changes regularly, and you may not want to rely on future boards remembering to update the records, thus exposing the community to penalties.
Q) What specific information needs to be reported for the CTA?
- Information about the corporation, such as the legal name of the organization, Federal Employment ID, and physical address of the corporation, as it was filed with the secretary of state. (Check your governing documents)
- Legal names, addresses, dates of birth and ID number, and an identification image (such as a driver’s license or passport) for all individuals classified as Beneficial Owners
- Legal names, addresses, dates of birth and ID number, and an identification image (such as a driver’s license or passport) for the company applicant.
Q) What is a Beneficial Owner?
A beneficial owner is any individual who, directly or indirectly, exercises substantial control over an entity, or owns or controls a certain percentage (usually 25% or more) of the ownership interests of that entity. For community associations, this could include:
- Officers on the Board of Directors
- Investment owners who own 25% of the units
- Builders and Developers who own 25% or more of the units in communities still under development
Q) What is a Company Applicant?
A Company Applicant refers to the individual(s) who filed the application to create the corporation. This is likely to be the original builder or developer’s agent. You can consult your articles of incorporation for the name, but you may need to do some leg work to track down the specific individual to get up to date information.
Q) How often do we need to file a BOI report?
After the initial filing, the CTA requires that you update the records within 30 days of ANY change to the information provided. This includes changing the name of the business (such as a dba or a merger), a change in officers or directors (such as a board election) and a change in address of any of the beneficial owners. Failure to provide updated information within the 30 day timeline can carry the same penalties as failing to complete an initial report.
Q) Who will be able to access BOI information?
CTA information is not publicly accessible, so your officers’ privacy will still be protected. The information collected will be accessible to certain federal and state authorities for law enforcement and regulatory purposes. There are also provisions for financial institutions to access this information with customer consent for due diligence purposes.
Q) How do we register our association for the CTA?
- Determine Eligibility: Confirm your association falls under the CTA’s requirements or if an exemption applies.
- Gather All Necessary Info: Prepare the requisite information, including employer ID, legal names, addresses, dates of birth, and ID numbers.
- Report to FinCEN: Utilize the e-filing system at boiefiling.fincen.gov to submit your BOI Report efficiently.
Q) Can you recommend any helpful resources on the CTA?
The best resource for staying informed about the CTA and compliance requirements is the official FinCEN website, FinCEN.gov/boi. One helpful resource they offer is the Small Entity Compliance Guide. When searching for resources, always check that the domain ends in .gov to ensure you have an official government site, and not a 3rd party company attempting to exploit business owners seeking to comply with the law.
If you have questions or concerns, you should also consult your legal advisor specializing in HOA and nonprofit corporate law.
Take a Proactive Step Towards CTA Compliance and Peace of Mind
Remember, compliance is not merely a regulatory requirement; it’s a strategic imperative that safeguards your community’s future. Get informed, stay compliant, and together, let’s enhance the strength and security of your association.
Don’t navigate this alone. Contact HOA Strategies today for a Free Strategic Evaluation, and discover how we can empower your association to not only meet these new compliance standards but to thrive within them. Together, let’s ensure that your community isn’t just prepared for the future but is actively shaping it.
