Community Associations and the Corporate Transparency Act

By Richard S. Ekimoto, Esq.

Background about the CTA

The Corporate Transparency Act (“CTA”)¹ is a federal law that adopted in 2021. The Financial Crimes Enforcement Network (“FinCen”) in the U.S. Department of the Treasury promulgated regulations implementing the Beneficial Ownership Information (“BOI”) Reporting requirements for all covered entities.² The regulations are codified as 31 CFR 1010.380 (“BOI Reporting Regulation”).

The CTA and the BOI Reporting Regulation were adopted because:

Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system.
87 FR 59498, 59498.

As a result, the law requires that all Reporting Companies must file a BOI Report online with FinCen that contains the following information:

The full entity name of the Reporting Company
Any Alternate Names of the Reporting Company (also referred to as an “assumed name”)
The address for the Reporting Company’s principal place of business
The state in which the Reporting Company was registered
The Reporting Company’s IRS taxpayer identification number
For each Beneficial Owner (see below for information about who is a Beneficial Owner):
- Name
- Date of birth
- Residential address
- Unique identifying number from one of the following unexpired identification documents:
  - United States Passport
  - State, local, or tribal ID
  - State driver’s license
- An image of the identification document

Who is a Reporting Company?

There are two types of Reporting Companies — Domestic Reporting Companies and Foreign Reporting Companies. Community associations would likely be a Domestic Reporting Company. A Domestic Reporting Company means any entity that is:

(A) A corporation;

(B) A limited liability company; or

(C) Created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.
31 CFR 1010.380(c)(1).

In Hawaii, many community associations are incorporated as a nonprofit corporation and would therefore be covered by the BOI Reporting Regulation. While there is an issue whether an unincorporated community association qualifies under the definition of Reporting Company, it would be safer to file a BOI Report. FinCen could take the position that the filing of a community association’s Declaration creates the unincorporated association and the Bureau of Conveyances is a similar office in Hawaii. As you may know, Hawaii does not have a Secretary of State and the Department of Commerce and Consumer Affairs Business Registration Division fulfills that function in Hawaii. Given the purpose of the CTA and the BOI Reporting Regulation, FinCen could argue that an unincorporated association poses the same risk of illicit actors using the association’s structure as Reporting Companies. Since the potential penalties for failing to file can be substantial, it is best to err on reporting if there is a question.

There are a number of exemptions in the BOI Reporting Regulation that takes what would otherwise be a Reporting Company outside of the BOI Reporting Requirements.³ Most of the exemptions involve different types of financial institutions because they are already heavily regulated and provide detailed information to the federal government. The only exemption that is likely to apply to a community association is the exception for tax exempt organizations under Section 501(c) of the Internal Revenue Code of 1986. However, very few community associations are tax exempt organizations.

Who is a Beneficial Owner?

A Beneficial Owner means:

any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.
31 CFR 1010.380(d).

For most Hawaii community associations, every member of the Board of Directors would probably be a Beneficial Owner. In addition, non-director owners who hold 25 percent or more of the project would be a Beneficial Owner. Even non-owners can be a Beneficial Owner if they exercise substantial control over the Reporting Company. In the FinCen issued FAQ on BOI, FinCen identifies senior officers of a Reporting Company like the CEO, CFO, COO or President as individuals with substantial control over the Reporting Company even if they are not owners or shareholders of the company. That means that associations will need to evaluate whether a general manager of an association would be a Beneficial Owner under the BOI Reporting requirements. Some general managers for community associations serve functions similar to a COO or CEO of the Association.

When must the BOI Report be filed?

For Reporting Companies in existence before January 1, 2024, you need to file by December 31, 2024.⁴ Reporting Companies formed in 2024 must file within 90 calendar days of being created.⁵ After 2024, new Reporting Companies must file within 30 calendar days of being created.⁶

In addition, updated reports must be filed if there is a change in the required information within 30 calendar days of the change. For example, the election of new directors, removal or resignation of a director, other changes for the Beneficial Owners including changes to the Beneficial Owners address, or expiration of a submitted driver’s license would require an updated BOI Report. This is just a summary of the changes that can trigger a requirement to update the BOI Report.

How do I file a BOI Report?

BOI Reports are filed online at the FinCen website. The individual that completes the form will also have to provide information including a picture of the individual’s identification document. It makes sense to have the information collected prior to filling out the online form. The pictures of the identification document of the Beneficial Owners and the person submitting the form should be on the computer that you use to complete the form.

What are the penalties for violations?

The violations of the BOI Reporting Regulation can be significant. The CTA allows for civil penalties of up to $500 a day.⁷ In addition, criminal penalties include fines of up to $10,000, imprisonment for up to two years, or both.⁸ Potential violations include willfully failing to file a BOI Report, willfully filing false BOI, or willfully failing to correct or update previously reported BOI.⁹ Both individuals and Reporting Companies can be liable for wilful violations. There are also penalties if someone who unlawfully discloses or knowingly uses the BOI.¹⁰

If incorrect information is provided, the law provides a safe harbor if a corrected report is filed within 30 days of becoming aware of, or having reason to know of, the inaccuracy. However, there is no safe harbor for corrections made more than 90 days after the filing of an inaccurate report, even if you file the correction promptly after becoming aware of the inaccuracy. There is also no safe harbor available for corrections where the inaccurate information was reported for the purpose of evading the reporting requirements, or where the inaccuracy was known to the person who submitted the report at the time it was submitted.¹¹

Conclusion

Existing community associations should makes plans to file their BOI Report before the end of the year. If your managing agent does not provide that service, you should arrange to have someone else provide the service. You should also calendar dates that identification documents expire and plan on updating records whenever there are changes in Beneficial Owners.

31 U.S.C. 5336. ↩︎
87 FR 59498. ↩︎
31 CFR 1010.380(c)(2). ↩︎
31 CFR 1010.380(a)(1)(iii). ↩︎
31 CFR 1010.380(a)(1)(i)(A). ↩︎
31 CFR 1010.380(a)(1)(i)(B). ↩︎
31 U.S.C. §5336(h)(3)(A)(i). ↩︎
31 U.S.C. §5336(h)(3)(A)(ii) ↩︎
31 U.S.C. §5336(h)(1). ↩︎
31 U.S.C. §5336(h)(3)(B). ↩︎
31 U.S.C. §5336(h)(3)(C)(i)(II). ↩︎