CAI’s Fight Against the Corporate Transparency Act: What Community Associations Need to Know
The Community Associations Institute (CAI) has been actively advocating for homeowner associations (HOAs) and community associations, aiming to protect their interests against federal regulations that may impose challenging compliance requirements. Recently, the CAI filed a lawsuit against the U.S. Department of the Treasury to prevent the enforcement of the Corporate Transparency Act (CTA) on community associations, arguing that the Act’s mandates place unnecessary burdens on these groups.
The Corporate Transparency Act: Key Requirements
The Corporate Transparency Act is a federal law aimed at improving transparency in business structures to prevent illegal activities like money laundering and fraud. Congress passed the CTA as part of the National Defense Authorization Act, and the law requires most U.S. entities, including community associations, to report their beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN).
Key reporting requirements include:
Beneficial Ownership Information (BOI): Community associations must file a BOI report detailing individuals who hold “substantial control” over the organization. This often includes HOA board members and requires personal information such as full legal name, address, and identification details.
Personal Information Disclosure: Beneficial owners’ sensitive information, like addresses and government-issued ID numbers, must be submitted to FinCEN, raising security and privacy concerns for board members and associations.
Non-compliance with the CTA can result in severe penalties, including fines and potential legal consequences for board members.
CAI’s Legal Action and the Denial of Preliminary Injunction
On October 11, 2024, CAI sought a preliminary injunction to block the enforcement of the CTA on community associations while the lawsuit proceeds. CAI argued that the CTA’s requirements were disproportionate for non-profit and community associations, which often lack the resources to meet federal compliance standards designed for larger corporate entities. However, on October 24, 2024, the court denied CAI’s request for an injunction, meaning community associations must comply with the CTA’s requirements by January 1, 2025.
Implications for Community Associations
With the denial of the preliminary injunction, community associations face several immediate challenges:
Administrative Burden: Associations, especially smaller ones, must prepare to meet detailed reporting standards, which may require administrative restructuring and additional resources.
Privacy Concerns: Board members are now required to disclose personal information, which may discourage volunteerism and could raise concerns about data security.
Risk of Penalties: Failure to meet the CTA’s requirements by the compliance deadline could result in severe penalties, putting financial and operational pressure on associations.
Moving Forward: CAI’s Continued Advocacy
The CAI continues to advocate for legislative adjustments that would exempt community associations from certain CTA requirements. In the meantime, associations should begin preparing for compliance by educating board members on the necessary steps and ensuring that all beneficial ownership information is accurately documented.
Compliance Tips for Community Associations
To help manage compliance effectively, CAI recommends that associations:
Educate Board Members: Hold informational sessions on the CTA’s requirements and reporting processes.
Secure Data Properly: Implement data protection measures to safeguard the personal information of board members.
Consult Legal Experts: Work with legal advisors to ensure that all reporting meets FinCEN’s standards and deadlines.
As CAI’s lawsuit progresses, associations should stay informed on any legislative updates or changes in the compliance requirements. For now, preparing for the CTA’s mandates is essential for all community associations to avoid legal and financial repercussions.
