Kieran J. Purcell, Esq., Author at Epsten, APC

The Corporate Transparency Act (Updated 2/1/2024)

*This article was updated on February 1, 2024.

In an effort to enhance corporate transparency and combat money laundering, tax fraud, and other illicit activity, Congress passed The Corporate Transparency Act (CTA) in 2021. The CTA will be enforced by the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury. FinCEN published the Small Entity Compliance Guide (Guide)[1] to help small entities comply with the requirements of the Beneficial Ownership Information Reporting Rule (Reporting Rule) issued on September 30, 2022.[2] Although the CTA applies to many types of small business entities, this article addresses some of the most frequently asked questions about how the CTA may apply to common interest developments (CIDs) after it goes into effect on January 1, 2024.

Who must file a Beneficial Ownership Information (BOI) Report?

The CTA requires certain entities to file beneficial ownership information (BOI) reports to FinCEN. These reports contain information about the entity itself and two categories of individuals: (1) beneficial owners and for domestic reporting companies created or registered after January 1, 2024, (2) company applicants. Generally, a beneficial owner is an individual who owns or controls at least 25 percent of a company or has substantial control over the company. A company applicant is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company.

When will initial BOI Reports be required?

BOI Reports can be filed electronically through FinCEN’s secure filing system beginning January 1, 2024. Reporting companies created or registered to do business before January 1, 2024, have until January 1, 2025, to file their initial BOI reports. Reporting companies created or registered after January 1, 2024, but before January 1, 2025, will have 90 calendar days from their creation/registration to file their initial reports. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports. Additional information about the Reporting Rule and guidance materials are available at www.fincen.gov/boi.

Is my CID a Reporting Company?

“A reporting company is any entity that meets the ‘reporting company’ definition and does not qualify for an exemption. There are two categories of reporting companies: a ‘domestic reporting company’ and a ‘foreign reporting company.’”[3] This article only addresses domestic reporting companies. If your CID is a corporation created under United States laws, including laws of the individual states or Indian tribes, it is a domestic reporting company unless it meets one of twenty-three (23) exemptions. For many CIDs, the most likely possible exemption is the large company exemption.

Is my CID eligible for a Large Company Exemption?

A CID qualifies for this exemption if it meets all of the following criteria.[4] It has more than twenty (20) full-time employees employed in the United States, the CID regularly conducts its business at a physical location in the United States, the CID filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

My non-exempt CID is a Reporting Company; What do I do next?

If your CID is a reporting company, your next step is to identify its beneficial owners. “A beneficial owner is any individual who, directly or indirectly: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.”[5] FinCEN expects that every reporting company will be able to identify and report one or more beneficial owner to FinCEN. If an individual qualifies as a beneficial owner, information about that individual must be reported to FinCEN in a reporting company’s BOI report.

“A reporting company can have multiple beneficial owners. For example, a reporting company could have several beneficial owners who exercise substantial control over the reporting company and may have no beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported.”[6]

Which individuals exercise substantial control over the CID?

“Reporting companies are required to identify all individuals who exercise substantial control over the company. There is no limit to the number of individuals who can be reported for exercising substantial control. “[7]

While the Reporting Rules lists four (4) Substantial Control Indicators (SCIs) for determining the individual(s) who exercise(s) substantial control over a reporting company[8], we will focus on the two (2) SCI categories which may most commonly apply to CIDs, Senior Officers, and Important Decision Makers.

Senior Officers are defined as an individual holding the position of President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, or General Counsel who perform similar functions as these corporate officers. Senior Officers are considered Beneficial Owners.

Important Decision Makers are any individuals who direct, determine, or have substantial influence over important decisions made by the reporting company, such as business or financial decisions. Please note managing agents and employees may be exempt from being beneficial owners. Managing agents, such as community association managers, may qualify for an agency exemption to the definition of beneficial owner if they perform ordinary advisory or contractual services. Employees of the reporting company who are not senior officers and whose substantial control is derived solely from their employment status may qualify for an employee exemption.[9]

What specific information does my CID need to report about each beneficial owner?

Full Legal Business name and any trade name or doing business as (DBA) name of the reporting company.
Complete current United States address of the reporting company.
Each Beneficial Owners must provide:
- Full legal names
- Date of birth
- Complete current addresses
- Unique identifying number/issuing jurisdiction/image (government issued photo identification, such as a driver’s license or passport)

When must reporting company provide updates or corrected BOI Reports?

An updated BOI Report containing updates, corrections, and additions are to be made within 30 days of the reporting company becoming aware of the change. CIDs should calendar this date when planning election timelines to make sure updates are reported in a timely manner. However, as the makeup of the CID Board of Directors may shift throughout the year as seats are vacated and filled through appointment, CIDs should keep the 30-day requirement in mind even outside of normal election cycles.

Consequences of failing to provide timely or accurate BOI Reports

The willful failure to provide timely, complete or updated BOI Reports to FinCEN, or the willful submission or attempt to submit a false or fraudulent BOI report may also result in a civil or criminal penalty, including civil penalties of up to $500 for each day the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may also be held accountable for that failure.

Is my reporting company required to report its company applicants?

A domestic reporting company is required to report its company applicants if it is created on or after January 1, 2024.

A domestic reporting company is not required to report its company applicants if it was created before January 1, 2024.

Efforts are being made to exempt CIDs and/or extend the reporting deadline

In late 2023, the U.S. House of Representatives passed the Protect Small Business and Prevent Illicit Financial Activity Act (H.R. 5119) by a vote of 400-1. This bill would delay the Corporate Transparency Act reporting requirements for one year. Currently, a companion bill is before the Senate. How the Senate will vote on this issue is unclear at the time this article is being written. However, some industry commentators have stated they believe the Senate will approve a 1-year hold on all Corporate Transparency Acts reporting requirements. In addition, they have stated it is less likely a CID exemption will be approved.

[1] FinCEN’s Small Entity Compliance Guide, December 2023, Version 1.1 can be found at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

[2] Beneficial Ownership Information Reporting Rule, Title 31, Section 1010.380 of the Code of Federal Regulations.

[3] FinCEN’s Small Entity Compliance Guide, December 2023, Version 1.1, at 2.

[4] Id. at 12.

[5] Id. at 16.

[6] Id.

[7] Id. at 17.

[8] Id. at 17.

[9] Id. at 30.

Balcony Inspections

Balcony Inspections

(SB 326: The Balcony Bill)

Updated by: Kieran J. Purcell, Esq., CCAL

By now most of you are aware that in August, 2019, Governor Newsom signed Senate Bill No. 326 (“SB 326”) into law, adding Civil Code section 5551 to the Davis-Stirling Act. This statute requires associations to perform inspections of balconies and other exterior elevated elements that the association has an obligation to maintain and/or repair by the end of 2024.

Below is an overview of the important points associations should be aware of as they prepare to conduct their first round of inspections under this new law.

Q&A

Which Associations are Impacted?

Associations with buildings having three or more multifamily dwellings. Single family home communities are not affected.

What Needs to be Inspected?

Any “Exterior Elevated Elements” (“EEEs”) the association has a responsibility to repair or maintain. Generally, this will be any load bearing components that extend beyond the exterior walls of the building to deliver structural loads to the building. Primarily this includes balconies, decks, stairways, walkways, and railings that are supported by wood or wood-based products and are more than six feet above the ground.

Who Can Perform Inspections?

Inspections must be performed by a licensed structural engineer or architect. Larger associations may also need to use a statistician, as the statute requires a statistically relevant sample size be inspected (95% confidence level, with a 5% margin of error).

When do Inspections Need to be Performed?

Inspections must be completed every nine years. The first inspection must be completed by the end of 2024. Buildings completing construction after this law went into effect, on January 1, 2020, will need to complete their first inspection within six years of issuance of a certificate of occupancy.

What Must the Inspection Look For?

Visual inspections must confirm EEEs are in a “generally safe condition” and “performing in accordance with applicable standards.” If the inspector sees signs that the waterproofing system has been compromised, or that there is risk of damage to the load bearing components of the building, they are to use their best judgment to recommend further inspections. If there are any threats to safety of residents, the inspector must notify the association immediately and governmental inspection agencies within 15 days of issuing their report. The association must act immediately to prevent access to dangerous areas and take other appropriate preventive measures necessary to protect the safety of the residents.

What Reports Must be Generated from the Inspection?

The inspector must issue a written report that includes:

Identification of the applicable building components subject to inspection;
Current physical condition of the components and whether there is a present threat

to health or safety of residents;

Expected future performance of the components and remaining useful life; and
Recommendations for any repairs.

The initial five-year window to complete the first inspection is intended to allow associations to coordinate their first balcony inspections to take place with an upcoming reserve study inspection. The subsequent nine-year balcony inspection cycles will then align with every third reserve study inspection going forward.

Prior to moving forward with inspections, an association should also confirm there are no more stringent inspection requirements in its governing documents or required by local government or enforcement agencies, as Civil Code section 5551 allows for more stringent requirements to be adopted locally.

What Does an Association Do with the Report?

The inspector’s report must be stamped or signed, and included in the association’s reserve study. The reports generated must be preserved in the association’s records for a period of at least two inspection cycles (or six years).

An interview with ProTec Building Services and Kieran J. Purcell, Esq.

Dave Rauch of ProTec Building Services interviews Epsten, APC Shareholder, Kieran Purcell, Esq., to discuss a wide variety of topics including SB 326 and what it means for communities as the deadline nears. They also discuss future legislation we can expect to see here in California in response to the Champlain Towers collapse and other trends in the industry.

Click here to check out the full interview.

Video source credits to ProTec Building Services

CAI-CLAC 2021 Virtual Legislative “Week” at the Capitol

By Kieran J. Purcell, Esq.

Each year, California Community Association (CAI) members visit Sacramento to educate legislators on current issues affecting California’s 55,000 Community Associations. With COVID-19 and in person events still a concern at that time, your CAI-California Legislative Action Committee (CLAC) conducted a four (4) day virtual CAI-CLAC Legislative “Week” at the Capitol, held April 12, 2021 – April 15, 2021.

The event was open to all that had an interest in advocating on behalf of California communities and included forty-eight Homeowners, Board Members, Community Managers, and Business Partners from the San Diego Chapter.

All attendees had the opportunity to attend informative briefing sessions with CAI-CLACs Legislative Advocate Louie Brown, and learn what new changes are on the horizon. During the week the eight chapters each had two or three virtual advocacy sessions with legislators and staffers from their respective districts. The sessions focused on Bills that were identified as being important by the CLAC Delegate body. These included SB 9 (lot splitting), SB 391 (emergency virtual meetings), AB 1101 (financial protections), and AB 1410 (limits on authority).

The San Diego Chapter attendees virtually met with representatives of Senate Pro Tem Toni Atkins, Assembly Member Chris Ward and representatives of Senator Patricia Bates. The Legislators and their staffs all noted and remarked how impressive it was to have forty-eight San Diego Chapter members participating in these virtual meetings.

These Legislative meetings served multiple purposes including, educating legislators, seeking support for specific bills, and showing appreciation for past support. Without the expense of travel for the event this year, CAI-CLAC was happy to have over 250 attendees and experience a significant growth in attendance from past in person events. In their post event survey responses, all responders stated their appreciation for the opportunity to participate in the legislative process and advocate on behalf of California community associations.

For more information on the bills that CAI-CLAC is currently working on for California homeowners and their associations, please visit current campaigns at our website at www.caiclac.com/current-campaigns.

Thank you to everyone from the San Diego Chapter who attended Virtual Leg Week! One of the strengths of CAI as a whole and the San Diego Chapter specifically, is our knowledgeable and diverse membership. It was a great experience to be able to showcase the San Diego Chapter to area Legislators and our CAI-CLAC colleagues throughout California. The San Diego Chapter was quite impressive when it came together and united for a common goal.

Kieran Purcell is a shareholder with Epsten, APC. He currently serves as a Legislative Co-Chair of CAI-CLAC, is a CLAC Delegate for the San Diego Chapter and a past President of the San Diego Chapter. You can reach Kieran at [email protected] or 858.527.0111.

This article was originally published in the Summer 2021 Issue of San Diego Community Insider by the San Diego Community Association Institute (www.cai-sd.org).

What is an Association’s Duty Before a Wildfire Strikes?

Kieran J. Purcell, Esq., CCAL

Managing Shareholder

858.527.0111
Email
Practices: Community Association Counsel

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Typically, an association is charged with enforcing its governing documents. Some aspects of pre- and post- wildfire related activities may be covered by an association’s CC&Rs or Rules (e.g., deadlines for reconstruction of damaged property or architectural approval) but many are not (e.g., the association’s ability to compel brush abatement on owner’s separate interest property). Yet homeowners may look to the association, if not for actual enforcement activity, then for leadership in this issue.

Providing Voluntary Services

If an association is not required to provide pre-and post- wildfire services pursuant to its governing documents, then any services provided by an association are purely voluntary and with that comes risks.

Consider the 2018 O’Malley v. Hospitality Staffing Solutions case in which a hotel employee voluntarily undertook a welfare check at the request of a guest’s spouse. The employee did not find the injured plaintiff during his welfare check, but she was found by her spouse sometime later. The injured plaintiff sued the hotel alleging the employee’s welfare check was not thorough enough and had she been found earlier, she would have received more timely medical care and her injuries would have been less extensive. The court in O’Malley held that if someone is giving aid to another, then the person providing the aid has to exercise due care. If the person providing the aid fails to exercise due care and that failure increases the risk of harm to another or if harm is suffered because the other relied on that person’s aid, then the person providing the aid may be liable.

So, what’s the lesson to be learned from the O’Malley case? If an association voluntarily renders services for the protection of others, it must exercise reasonable care in doing so or the association may be liable under a “negligent undertaking” theory of liability for its failure to exercise reasonable care.

Many homeowners assume their association will render some sort of relief or emergency services should a natural disaster occur. Some associations even provide periodic reminders or create an “Emergency Preparedness Plan” or an “Emergency Preparedness Committee.” If your association is going to provide such voluntary services, the association should: (1) clearly inform its residents of the services the Association will and will not voluntarily provide; (2) consult with an expert as to how the association can provide the best quality services possible; and (3) confer with its insurance expert to obtain insurance for any insurable risks.

Premise Liability

Negligence arises when an association, through its board of directors, knows or should know there is a risk of property damage, fails to take reasonable action to prevent such damage, and this failure proximately causes property damage. The types of negligence asserted against associations are myriad and diverse. Some of the more common varieties concern premises liability.

Could an association be held to the same standard of care as a landlord regarding premises liability? In short, the answer is “yes.” In Frances T. vs. Village Green Owners Ass’n, the California Supreme Court held that in certain instances an association has a duty to investigate criminal activity and take appropriate safety measures, just as a landlord would for his or her tenants. The Court’s rationale for its holding in Frances T. is that, like a landlord, the association manages and controls the common area, so when a hazard is foreseeable the association has a duty to exercise due care for its resident’s safety in those areas that are under its control. A court might impose a similar duty on your association if a wildfire is foreseeable because your community is located in high risk area for wildfires. If your community is located within such an area, your association should consult with an expert as to the kinds of wildfire mitigation measures your association should implement as part of its common area maintenance and your association should implement them if it is able.

Breach of the Duty to Maintain

An association could be liable, even if it was not negligent, if it failed to adequately discharge its maintenance duties as required in its governing documents. In Franklin v. Marie Antoinette Condominium Ass’n., a building component the association had a duty to maintain, pursuant to its CC&Rs, leaked resulting in property damage to an owner’s condominium. The owner of the condominium sued the association for breach of the association’s duty to maintain and for negligence. The court in Franklin discussed how an association might be liable regardless of whether it acted negligently if the association had a duty under its CC&Rs and it breached that duty.

Good Samaritan Laws

Will an association be protected as a “Good Samaritan”? California Health & Safety Code section 1799.102(b)(2) offers some protection to “Good Samaritans,” but under fairly narrow circumstances. In relevant part it provides, “no person who, in good faith and not for compensation, renders emergency medical or nonmedical care or assistance at the scene of an emergency shall be liable for civil damages resulting from any act or omission other than an act or omission constituting gross negligence or willful or wanton misconduct.” A careful reading of this language shows it may provide immunity to an individual, who renders emergency medical or nonmedical care at the scene of an emergency, but not an association as a corporate entity.

So, what’s an association to do? A good place to start is by reviewing the association’s governing documents, for example:

Easement Rights

Generally, CC&Rs grant the association and owners nonexclusive easement rights of ingress and egress through the common area and separate interest property for specified purposes, e.g., maintenance the association or owner is obligated to perform under the CC&Rs. However, do your association’s CC&Rs allow it to access an owner’s separate interest property to do brush abatement, clear debris, or other common pre/post-wildfire activities? And if so, do the CC&Rs permit the association to impose an individual assessment to recover its costs if it performs these tasks after an owner fails to do so? Does the association have the authority to: (a) barricade damaged common areas; (b) control or limit access over streets; (c) open gates to admit emergency vehicles; and (d) shut-off utility valves, cap leaks and repair non-common area lines?

Exculpatory Clauses

An exculpatory clause is a provision in an association’s CC&Rs which typically exonerates it from liability for certain types of damages. California courts have accepted the validity of exculpatory clauses in CC&Rs, which exonerate an association from having to reimburse an owner for property damage caused by a failed component the association had a duty to maintain, when the failure was not due to the association’s negligence. (See the Franklin v. Marie Antoinette case.) If your association still has its original 1970’s era CC&Rs, it’s unlikely they will contain such an exculpatory clause. However, if your CC&Rs were written or amended within the last 20 years or so they may contain an exculpatory clause, and if so, this may impact the association’s liability for property damage after a wildfire occurs.

Insurance Obligations

Most governing documents contain insurance provisions, but they can vary greatly from association to association, so it’s a good idea to consult with your association’s community management team, its insurance broker, and legal counsel to: (1) confirm that your association is meeting its existing insurance obligations and (2) determine if additional insurance coverage is a good idea (e.g., guaranteed replacement cost or anticipated emergency activities coverage).

Damage, Destruction and Partition

CC&Rs often contain provisions establishing the duties and responsibilities of owners in the event their separate interest property is damaged or destroyed by fire or another casualty. It is common for these provisions to require owners to rebuild, repair, or reconstruct their separate interest property in a manner substantially similar to its condition/appearance prior to the casualty or as approved by the association within a specified period of time. Is the specified time limit (sometimes as short as 30 days) adequate? Consider the feasibility of the time limit not only from the stand point of a single property being damaged, but also following a conflagration like the 2007 Witch Creek fires, in which over 1,000 homes were destroyed. What triggers the start of this time clock? The date of the loss? Or, something which sounds logical-like the date owner receives insurance proceeds-which may be difficult or impossible to accurately determine.

The above list of governing document provisions to consider is provided solely for the purposes of discussion and is not intended to be an all-encompassing list. If your review of your governing documents identifies areas of concern, you may wish to consider working with your community management team and legal counsel to amend your governing documents.

What is Leg Day and Why is it Important?

The CAI-California Legislative Action Committee (“CLAC”) Legislative Day at the Capitol was held on April 8-9 in Sacramento. This event provides CAI members the opportunity to attend educational sessions, meet CLAC Delegates from around the state, as well as meet with and educate their legislators about pending legislation and how it affects community association. One hundred and ten (110) people participated in Leg Day 2019 which allowed us to visit all 120 members of the California State Legislature this year. Special thanks to Chapter Executive Director Richard Ybarra, Chapter Board President Racheal Robenolt and CLAC/LSC members Craig Combs, Kimberly Lilley, Pamela Richardson, Robert Riddick, Natalie Stewart, and Robert Ward for their great work on our behalf.

Why You Should Never Skip Leg Day:

1. Let your Voice be Heard: One of CAI’s greatest strengths is the diversity of its membership which is comprised of homeowners, community managers and service providers who live in and work with community associations. While CLAC Delegates are diligent, hardworking, experienced professionals, no one knows how a pending bill will affect you, your community or your business better than you do. Your unique input can make an important difference, but only if you make your voice be heard.

2. There is Power in Numbers: You may think analyzing and shaping pending legislation is the job of CLAC delegates and CAI’s legislative advocate, Louie Brown. You are right. However, input from constituents, whether in the form of an in-person visit, social media post, email or hard copy letter can be extremely influential on elected officials. Why? Because your vote literally may determine whether someone is re-elected, so you have greater power than you may think and need to use it!

3. Be a Resource: There were over 2,000 bills introduced in 2019 and it’s extremely challenging for a legislator and their staff to understand them all. Take advantage of this opportunity to educate them not only on whether a draft bill does what its author says it’s trying to accomplish, but also what are the unintended consequences of the bill. For example, a bill may increase public safety, but be so expensive to implement that the individuals whose homes it’s proposing to make safer may lose their homes in paying for the measures required by the bill.

4. Relationships Matter: Politics is the art of the long game. Legislators will meet with constituents and people with business before their committees over anyone else. If a legislator evaluates the pros and cons of a bill to be fairly equal, their vote generally will go to the person or organization they have a relationship with. So it’s very important to cultivate those relationships now; and, your participation in Leg Day is a great way to do just that.

Your role in the process is important! Thank you to everyone who joined us this year; and, we hope to see as many of you as possible at Leg Day 2020.

Kieran Purcell, Esq. Receives CAI San Diego's 2014 Presidents Award

The San Diego Chapter of the Community Associations Institute (CAI) held its Annual Awards Luncheon on December 3, 2014. During the afternoon’s festivities, CAI San Diego president Jason Payne presented the 2014 President’s Award to Epsten attorney and shareholder Kieran Purcell, in recognition of Kieran’s many volunteer hours and outstanding service to the chapter through his efforts to improve the organization.

Congratulations, Kieran, and thank you to CAI San Diego for allowing us to be a part of such a great organization!