NOTE: Due to the rapidly evolving nature of this situation, the blog post below does not contain the most up to date information. Please see our latest blog post on the Corporate Transparency Act (CTA) here:
https://eclipsecommunities.com/corporate-transparency-act-the-dizzying-back-and-forth-continues-cta-reporting-voluntary-for-now/
On December 23, 2024, the 5th U.S. Circuit Court of Appeals issued a ruling that lifted a nationwide injunction that had previously blocked enforcement of the Corporate Transparency Act (CTA), allowing the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to resume implementation and enforcement of the law with a slight delay of the filing deadline to January 13, 2025. This continues to be a developing matter, but all community associations should proceed to file by the deadline if they have not already.
Background of the Corporate Transparency Act
The CTA requires entities – including homeowner and condominium associations – to disclose information about their “beneficial owners”. Beneficial owners are individuals who either exercise substantial control over the entity or own at least 25% of its ownership interests. Under the FinCEN rules, Association board members are considered the beneficial owners of a homeowner or condominium association. The CTA is designed to prevent the misuse of companies for activities such as money laundering, tax fraud, and other financial crimes, aligning U.S. regulations with international transparency standards.
Legal Challenges
On September 10, 2024, Community Associations Institute (CAI) filed a lawsuit challenging the application of the Corporate Transparency Act on community associations. The lawsuit requested a preliminary injunction to delay the reporting requirements. On October 24, 2024, CAI’s preliminary injunction request was denied by the federal judge in this case.
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction in a different case, prohibiting enforcement of the Corporate Transparency Act (CTA) nationwide. The injunction temporarily halted any implications or penalties for community associations that had not completed the required reporting.
On December 6, 2024, the federal government filed a notice of appeal seeking to challenge the injunction.
On December 18, 2024, the CAI filed an amicus brief in support of the case and the importance of maintaining the current nationwide preliminary injunction.
On December 23, 2024, the Fifth U.S. Circuit Court of Appeals issued a stay on the injunction previously granted by the U.S. District Court for the Eastern District of Texas, effectively allowing the federal government to move forward with the implementation of the CTA. In response to the ruling, FinCEN announced a delay in the original reporting deadline of January 1, 2025; allowing until January 13, 2025 for completion of the reporting for all but very recently formed associations.
Implications for HOA and Condominium Associations
This ruling carries significant implications as all Ohio community associations fall under the reporting requirements of the CTA and will need to file a Beneficial Owner Information Report by January 13, 2025. Board members will need to provide their full legal name, date of birth, current address, and a government-issued ID to comply with FinCEN’s requirements. An updated report must be filed any time there is a change in the association’s board membership. Non-compliance could result in penalties including daily fines of up to $500, and even criminal charges with potential fines of $10,000 and imprisonment for up to two years for willful violations.
For homeowner and condominium association boards, yesterday’s ruling underscores the urgent need to prepare the required documentation and ensure timely compliance with FinCEN’s reporting rules. The Community Associations Institute (CAI) and other like minded industry groups continue to oppose and challenge the application of the CTA to homeowner and condominium associations, however at this point it is more than likely that the January 13, 2025 deadline will apply.
Options to Complete Filing
Community associations that have partnered with Eclipse Community Management have three options for reporting:
Option 1 – Delegate Reporting to the Association’s Attorney
- Validation documents must be provided to the attorney by each board member.
- Cost for the initial report is determined by your attorney, typically ranging from $250 to $800+.
- Cost for any necessary updated reports is determined by your attorney.
Option 2 – Delegate Reporting to Eclipse Community Management
- Validation documents must be provided to Eclipse by each board member via the secure data collection tool on our website.
- Cost for the initial report is $400.
- The cost for any necessary updated reports is $250 per occurrence.
Option 3 – Assume Board Responsibility for Filing the Beneficial Ownership Information Report
- Board members provide their documents to the designated individual or fellow board member.
- The Board retains responsibility for completion of the report no later than January 13, 2025.
- There is no cost for this approach.
Next Steps
Legal experts expect further challenges to the law, but associations are advised to comply with the current requirements while the landscape continues to evolve. For further information, you can refer to these sources:
- Community Associations Institute’s Corporate Transparency Act page
- FinCEN FAQ page
- Ohio Secretary of State
- U.S. Chamber of Commerce
The leadership team at Eclipse Community Management continues to follow this topic closely and we are happy to answer questions you may have. If we can be of assistance, please contact us via our website.
