*This article is an update to the version The Corporate Transparency Act (Updated on 2/1/2024)
The CTA & Community Associations
As a reminder, in an effort to enhance corporate transparency and combat money laundering, tax fraud, and other illicit activity, Congress passed The Corporate Transparency Act (CTA) back 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 movement towards potential exemptions and some of the most frequently asked questions about how the CTA currently applies to common interest developments (CIDs).
Movement Towards Potential Exemptions
CAI’s Lawsuit:
As you may be aware, on March 1, 2024, a federal court ruled the Corporate Transparency Act (CTA) unconstitutional, and the federal government appealed the decision on March 11, 2024. In June 2024, the Community Associations Institute (CAI) Board of Trustees approved filing a lawsuit to exempt common interest developments from the Corporate Transparency Act. Click here for more information about CAI’s lawsuit.[3]
CAI is pursuing this case in the U.S. District Court for the Eastern District of Virginia because CAI is incorporated in the District of Columbia and headquartered in Virginia. Additionally, the Eastern district is known for having a rapid docket process that allows it to hear cases more quickly than other federal courts and offers the potential for a faster resolution. However, CAI National cautions common interest developments should be prepared to comply with the CTA and file the required beneficial ownership information by December 31, 2024 if the lawsuit is not resolved or the law has not been amended. While CAI is actively pursuing legal action to seek an exemption, it urges common interest developments to prepare to comply to avoid potential penalties and ensure they meet all legal requirements. More information can be found on CAI’s CTA FAQ page [4].
H.R. 9045:
The Corporate Transparency Act exempts non-profits that hold an IRS non-profit tax determination. Common interest developments are generally incorporated as a local state non-profit corporation [5]; however, they usually do not have an IRS non-profit tax determination (i.e., 501c).
On July 15, 2024, H.R. 9045 was introduced seeking to exempt common interest developments from the requirements of the Corporate Transparency Act. CAI requests concerned individuals contact their Member of Congress urging them to support H.R. 9045 [6], even if they have done so already about the Corporate Transparency Act.
H.R. 9045 is in the first stage of the legislative process. It will typically be considered by committee, then if approved in committee, sent on to the House as a whole to approve.
Application to Common Interest Developments
While CAI’s lawsuit and H.R. 9045 provide hope that there might be an exemption from CTA requirements for common interest developments in the future, it is difficult to anticipate how near that future is. Common interest developments boards should take the time now to become educated on the requirements and to prepare for compliance in case an exemption is not obtained before the filing deadline at the end of this year. Unless and until an exemption is made for CIDs, CIDs will need to comply with the annual filing requirements. For answers to frequently asked questions about the CTA filing requirements, read our article on The Corporate Transparency Act (Updated on 2/1/2024) [7].
[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] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/landing.aspx
[4] https://www.caionline.org/Advocacy/Priorities/CTA/Documents/FAQ%20FINAL.pdf
[5] https://www.caionline.org/Advocacy/Priorities/CTA/Pages/default.aspx
[6] https://www.votervoice.net/CAI/Campaigns/116499/Respond
[7] https://www.epsten.com/the-corporate-transparency-act/