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What Does CTA Reporting for HOAs Involve?
As the deadline approaches for compliance with the Corporate Transparency Act (CTA), Homeowners Associations (HOAs) across the United States must evaluate their structures to determine their obligations under the new reporting requirements.
Having taken effect January 1, 2024, understanding whether your HOA meets the definition of a reporting company and identifying the beneficial owners are critical for accurate and timely compliance.
On April 18th, 2024, the Financial Crimes Enforcement Network (FinCEN), who is tasked with collecting and analyzing this information, issued new FAQs that clarify obligations for HOAs – let’s dive in.
Do Homeowners Associations Need to File BOI Reports?
The classification of an HOA as a reporting company under the CTA depends primarily on the process of its formation and whether or not it meets the definition of an exempt entity.
Here’s a straightforward breakdown:
- Incorporation Status: If an HOA was established by filing a document with a secretary of state or similar office, it is considered a domestic reporting company and may need to comply with CTA reporting requirements. Examples include incorporated HOAs and other similar entities.
- Exemptions: Certain HOAs may qualify for exemptions from the reporting requirements. For instance, HOAs that are designated as 501(c)(4) social welfare organizations are considered tax-exempt entities and are thus exempt from these requirements.
Who is the Beneficial Owner of a Homeowners Association?
Identifying the beneficial owner(s) of an HOA that qualifies as a reporting company is essential for compliance with the CTA. The criteria for determining a beneficial owner include:
- Substantial Control: The individual must exercise significant control over the association. This can be through direct actions or by controlling significant aspects of the HOA’s operations and decisions.
- Ownership Interests: Individuals who own or control at least 25 percent of the ownership interests in the HOA.
In many cases, no single individual meets the 25 percent control criterion due to the distributed nature of ownership in most HOAs.
However, FinCEN expects that there will always be at least one person who holds substantial control over the association. This could be a senior officer, a person with the power to appoint or remove officers or directors, a key decision-maker, or anyone who holds significant influence within the HOA.
Key Takeaways for HOAs
- Check Incorporation: HOAs must first verify if their filings with a state resulted in there formation/incorporation as an entity.
- Identify Beneficial Owners: HOAs that are reporting companies need to identify any individuals who either control at least 25% of the entity or have substantial control as defined under CTA guidelines.
- File Reports on Time: Reporting companies established before January 1, 2024, must file their initial BOI report with FinCEN by the end of 2024. Late filings can result in penalties or other legal consequences. Those formed in 2024 have 90 days from formation, and those created in 2025 and on will have 30 days.
The introduction of the CTA represents a significant shift in how business entities, including HOAs, are regulated in terms of transparency and financial disclosures.
HOAs must take proactive steps to ensure compliance to avoid potential legal and financial penalties. With January 1, 2025, just around the corner, it is imperative for HOAs to assess their obligations under the CTA thoroughly and take necessary actions.
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