*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) to help small entities comply with the requirements of the Beneficial Ownership Information Reporting Rule (Reporting Rule) issued on September 30, 2022. 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.’” 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. 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.” 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.”
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. “
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, 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.
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.
 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
 Beneficial Ownership Information Reporting Rule, Title 31, Section 1010.380 of the Code of Federal Regulations.
 FinCEN’s Small Entity Compliance Guide, December 2023, Version 1.1, at 2.
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