On January 1, 2024, the Corporate Transparency Act (the “CTA”) became effective. The main goal of the CTA is to combat financial crimes by enhancing transparency in the ownership and control of corporations. The CTA will be administered by the Financial Crimes Enforcement Network which is part of the Treasury Department and known as “FinCEN.” Strict compliance is required for all entities and individuals to which it applies.
Most associations will be required to comply with the CTA because they are corporate entities, the CTA is primarily focused on (relatively) small corporate entities, and association board members have “substantial control” over the association and its finances.
In complying with the CTA, boards must be aware of the (1) reporting deadlines, (2) beneficial ownership information which must be reported, (3) privacy concerns, and (4) penalties for noncompliance.
Reporting Deadlines:
Associations will have to file a beneficial ownership information (BOI) report with FinCEN within the deadlines:
- An association whose corporate entity was formed before January 1, 2024, will have until January 1, 2025, to file its initial BOI report without penalty. These associations will not need to file information for the individual(s) who filed a document to create or register the entity (the “Entity’s Applicant”).
- An association whose corporate entity is created or registered on or after January 1, 2024, but before December 31, 2024, shall have 90 calendar days after its creation or registration to file its initial BOI report. For virtually all new associations, this will be within the time of sponsor control.
- An association whose corporate entity is created or registered on or after January 1, 2025, will have 30 days to file its BOI report. This too will be done by the Sponsor that created the Association.
Beneficial Ownership Information:
Association board members (and in some cases managers) are considered beneficial owners of an entity under the CTA. An individual will be considered a beneficial owner if that individual either:
- has the ability to make important decisions for, or has substantial control over, an entity required to comply with the CTA; or
- owns twenty-five percent (25%) or more of an entity required to comply with the CTA. If the Entity’s Applicant is the same person as the beneficial owner, then that person may obtain a FinCEN identification number which can be provided to FinCEN as a form of identification in lieu of resubmitting their information as the Entity’s Applicant.
The beneficial ownership information reported to FinCEN will include details about the association board members such as their names, addresses, dates of birth, and a unique identification number from an acceptable identification document with a supporting image (i.e., driver’s license or passport). Within 30 days of the entity becoming aware of changes, corrections and additions, a revised BOI must be filed.
Privacy Considerations:
Board members may be concerned about privacy. FinCEN, through what is known as the Access Rules, is authorized to release the beneficial ownership information to certain domestic and national agencies including law enforcement, intelligence, financial institutions, etc. These groups entitled to receive BOI will face specific scrutiny and confidentially requirements to receive the beneficial ownership information, in accordance with the CTA and FinCEN regulations to help protect it and keep it confidential.
Penalties for Noncompliance:
The failure for a person to report in compliance with the CTA, if required, will result in a civil penalty of up to $500 for each day the person is not in compliance, up to $10,000, with the possibility for imprisonment for up to two years.
If you are unsure whether your association is required to file beneficial ownership information or you need assistance in doing so, please contact us. We can help interpret the requirements, guide you through the process, and ensure compliance with relevant regulations.
