The Corporate Transparency Act (the “CTA”) was enacted by Congress on January 1, 2021 (31 USC 5301, et seq.). The stated purpose of the law is to address “the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism.” WHAT? So how does this relate to my Association? The CTA requires small corporations, limited liability companies, and companies created by filing a document with the State (“Reporting Company”) to disclose information about their beneficial owners. Beneficial owners are “any individual who, directly or indirectly:”

1. Exercises substantial control over a corporation or limited liability company, or
2. Own 25% or more of the interest in a corporation or limited liability company. 

Subsection two likely does not apply unless you are an association of 4 or fewer units. However, subsection one certainly seems to cover all officers, directors, and potentially the manager(s), and therefore the CTA does apply to your association and those controlling it. 

Are There Any Exceptions?

Yes, 23 of them. Unfortunately, it is extremely unlikely that any of them apply to you or your association. The full list of exceptions can be found at 31 USC 5336 (a) (11) (B) (i) – (xxiii), but they all sound similar to the following:

• Domestic Governmental Authorities
• Banks
• Bank Holding Companies and Savings and Loan Holding Companies
• Registered Money Transmitting Businesses
• Securities Exchange or Clearing Agents
• Public Accounting Firms
• Public Utilities
• Pooled Investment Vehicles
• Entities Assisting Tax Exempt Entities

If you happen to be an association that has (a) more than 20 full-time employees in the U.S., (b) has filed a federal tax return recording more than $5 Million in gross receipts or sales in the previous year, and (c) -have an operating presence in the U.S., then you may also be exempt as a “Large Operating Company.” In Wisconsin, I can think of only a handful of associations to which this might apply, but if you are one of them then you are likely exempt.

What Kind of Information Must be Reported?

Reporting Company. The Reporting Company must file a beneficial ownership report with the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”) which includes:

1. The full legal name of the Reporting Company;
2. Any trade name or “doing business as” name of the Reporting Company;
3. The complete current principal place of business address of the Reporting Company;
4. The State of formation of the Reporting Company;
5. The State where the Reporting Company first registered to do business; and
6. The IRS Taxpayer Identification Number (“TIN”) of the Reporting Company. 

Beneficial Owner. The CTA mandates the creation of a database of Beneficial Ownership Information (“BOI”) for Reporting Companies. Every beneficial owner and company applicant with respect to a beneficial owner must include on the report:

1. The full legal name of the individual;
2. The individual’s date of birth;
3. The individual’s residential street address (or if the applicant is a company, the street address of the company);
4. A unique identifying number and issuing jurisdiction, which will likely be either
   • Driver’s License number and State; or
   • Passport number of the United States.
5. A copy of the Driver’s License or Passport

When does the CTA Take Effect?

For Existing Associations – 1/1/2025

For New Associations – as of 1/1/2024, within 30 days of incorporation.

Is My Association Exempt from CTA if it Doesn’t Pay Any Federal Income Taxes?

Probably not. If your association has applied for and received tax exemption under Section 501(c), then it is exempt from CTA. Otherwise, your association is not exempt. 

What if Your Association Violates the CTA and Fails to Report?

There is a civil fine of $500.00 per day, up to $10,000.00, plus criminal fines or prison time for willful failure to report or filing erroneous reports. So don’t forget to file. 

Anything Else?

Yes. Unless the law is amended between now and 6/30/2024, you can expect management companies to begin sending out amended management contracts to limit the risk that they will be viewed as having “any other form of substantial control.” I would expect the contract amendments to state that the management company’s actions with respect to the association are completely subject to the control of the board of directors.

Because actual filing of the first report will not be required until 12/31/2024, unless you are an association created after 1/1/2024, it is possible that Congress will figure out that this law makes no sense for community property associations and add them to the list of exempt entities. If that does not take place, then as of 6/30/2024 we would recommend that associations begin gathering the information so that the report can be filed on 12/1/2024 and avoid the last-minute rush that will otherwise arise to avoid the substantial penalties. 

Finally, you need to know that each time there is a change in BOI, a corporation must report the change within 30 days. This applies not only to a change in officers or directors but also to a director or officer change of a BOI’s resident address. Managers, officers, and board members need to create a system so that the reporting of the change becomes second nature. 

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