For a general overview of the Corporate Transparency Act, please view our earlier blog post.
Since the Corporate Transparency Act (the “Act”) went into effect, community association managers, board members, and attorneys have grappled with one question: Does this apply to us? New legislation often seeks to resolve existing issues, but, ironically, it can create new challenges in the process. Earlier this year, a Federal District Court in Alabama ruled that the Act is unconstitutional, holding that it exceeds the powers granted to Congress by the U.S. Constitution. However, the ruling provided no clear guidance on whether corporations are still required to submit information to the federal government’s Financial Crimes Enforcement Network (FinCEN).
To address some of this confusion, the U.S. Department of Treasury issued a FAQ on “beneficial ownership.” According to this guidance, the federal government has confirmed that community associations are not exempt from reporting the existence of “beneficial owners.” Furthermore, it suggests that board members may fall under this category.
On September 10, 2024, the Community Associations Institute (CAI) filed a lawsuit against the U.S. Department of Treasury and U.S. Secretary Janet Yellen. In its complaint, CAI alleges that the federal government improperly categorized community associations as “reporting companies” subject to the Act’s requirements. CAI also argues that the Act will deter homeowners from serving on their community boards, as many are already hesitant to take on the responsibilities of managing their associations. Considering the Act imposes severe penalties—including potential federal imprisonment—for failing to report to FinCEN in a timely manner, homeowners are effectively risking legal consequences for simply volunteering to help their communities.
In summary, CAI’s lawsuit seeks to achieve the following:
- Judicial review of any denial of requests for exemptions from FinCEN reporting.
- A declaration that the Act does not apply to community associations, including condominiums, homeowners associations, and housing cooperatives.
- An exemption for board members from being classified as beneficial owners under the Act.
As this lawsuit is still in its early stages, the outcome remains uncertain. Our office is closely monitoring the situation and will provide updates as new information becomes available. In the meantime, community associations and their board members should continue gathering the necessary documentation to comply with the Act’s reporting requirements.
The legal landscape is always evolving, and with change often comes uncertainty. Our team is here to help navigate these complexities. If you have questions or need guidance regarding the Act or any other legal matters, please feel free to reach out to us.
Note: This article provides general information and should not be considered legal advice. If you are dealing with a legal issue related to the content presented, we encourage you to consult with qualified legal counsel. To schedule a consultation with our office, please visit our website at https://rpglaw.com.
To join CAI: www.caionline.org and www.suncoastcai.com
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