In today’s ever evolving regulatory environment, transparency is more critical than ever.  The Corporate Transparency Act (CTA) is a crucial legislative effort aimed at promoting this transparency.  Although primarily aimed at shell companies and businesses, the CTA also affects certain non-traditional entities, such as Homeowners Associations (HOAs).

What is the CTA?

The Corporate Transparency Act (CTA) aims to combat financial crimes like money laundering, terrorism financing, and tax evasion by increasing corporate transparency. As of January 1, 2024, the CTA requires certain businesses, including corporations and LLCs, to disclose their beneficial owners—those with significant control or ownership—to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). Non-compliance can result in significant fines and penalties.  

How Does the CTA Affect HOAs?

While HOAs are typically viewed as local community organizations, many are legally structured as not-for-profit corporations. Under the CTA, not-for-profit corporations must submit their beneficial ownership information to FinCEN unless they qualify for an exemption. Additionally, there may be instances where it has subsidiaries or other entities associated with it, such as a management company, that need to report their ownership information.

Why Compliance Matters

For non-exempt HOAs, complying with the CTA is essential. The filing deadline is January 1, 2025, and failure to report or providing inaccurate information can lead to hefty civil and criminal penalties, including fines up to $10,000 and possible imprisonment. HOAs must consult with management companies to determine if they need to comply with the CTA’s reporting requirements.

Steps for Preparing for Compliance

HOAs should take the following steps to ensure CTA compliance:

1. Understand Your Structure:  Verify the HOA’s legal structure and determine if it qualifies for a not-for-profit exemption under IRS guidelines.
2. Identify Beneficial Owners:  If not exempt, identify individuals with 25% or more ownership or control.
3. Consult Advisors:  Work with legal and accounting professionals familiar with the CTA to guide the compliance process.

Conclusion

Although the Corporate Transparency Act was not specifically created for HOAs, some may still need to meet its requirements depending on their structure.  While many not-for-profit HOAs might be exempt, others such as LLCs or for-profit entities must ensure compliance to avoid penalties. 

By prioritizing transparency and compliance, HOAs can continue to serve and improve their communities effectively.

With Neighborhood Connections, the patented management software from AR Management, you can improve the way your HOA communicates, making your community a better place to live.  Contact AR Management to schedule a consultation and demonstration of the platform today.