The federal Corporate Transparency Act (CTA) introduced new reporting requirements for a variety of entities, including homeowners’ associations (HOAs) and condominium associations. This law, designed to increase corporate transparency and curb illegal activities such as money laundering and fraud, mandates that certain types of organizations disclose information about their beneficial owners. For the boards of directors and managers of HOAs and condominium associations, it is essential to understand these new rules and prepare for the upcoming compliance deadlines to avoid penalties.

This blog will guide your association through the CTA’s compliance requirements, provide key deadlines to mark on your calendar, and outline practical steps to ensure your HOA or condominium association is fully prepared.

What is the Corporate Transparency Act?

The Corporate Transparency Act, passed in 2021, is part of a larger push for transparency in business operations. It requires certain corporations, limited liability companies (LLCs), and other legal entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). These entities must disclose detailed information about individuals who own or control significant portions of the entity, such as board members or officers. This law targets both newly formed and existing entities that engage in corporate or financial activities. For HOAs and condominium associations, most often formed as nonprofit corporations, the CTA imposes similar reporting obligations.

Who is Affected by the Corporate Transparency Act?

HOAs and condominium associations, being incorporated entities, are likely subject to the CTA’s reporting requirements in most instances.[1] The law does provide some exemptions for entities that already fall under certain regulatory regimes, but most community associations in Michigan will need to comply.

Understanding who qualifies as a “beneficial owner” is crucial for compliance. In most HOAs and condominium associations, the “beneficial owners” are likely the board members or officers who govern and operate the association. According to the CTA, any individual who owns or controls at least 25% of an entity, or exercises significant control, must be reported.

Key Deadlines and Reporting Requirements for HOAs and Condominium Associations

To avoid penalties, it is vital that HOAs and condominium associations meet the Corporate Transparency Act’s deadlines and understand what information needs to be reported.

Here are the key dates:

  • January 1, 2024 – Effective Date: The CTA’s reporting requirements took effect on January 1, 2024.
  • January 1, 2025 – Deadline for Existing Entities: If your HOA or condominium association was formed before January 1, 2024, you have until January 1, 2025, to submit your first BOI report. This gives existing associations time to collect the necessary information and ensure compliance with the new rules. However, it is essential to start preparing well in advance to avoid last-minute issues or unexpected delays that could arise.
  • January 1, 2025 – Deadline for Entities formed on or after January 1, 2024, and before January 1, 2025: Associations formed on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the associations’ creation or registration to complete the initial report. This 90-calendar day deadline runs from when the associations receive notice that their creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier. 
  • Deadline for Associations Created on or after January 1, 2025: Associations created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice of their creation or registration is effective to file their initial BOI reports.
  • Ongoing Reporting Requirements: After the initial report is filed, HOAs and condominium associations must submit updated reports whenever there is any change in or addition made to the BOI that the association previously provided. This includes changes in board members or officers and their related BOI (e.g., whenever a board member moves or resigns, a new director is elected, etc.).  Reports must be updated within 30 days of the association becoming aware of any such change. Failing to keep information current can result in hefty penalties to the association. 

What Information Needs to Be Reported?

For HOAs and condominium associations, the “beneficial ownership information” (BOI) report must include specific details about the association and each beneficial owner. This includes:

  • The name of the association.
  • Board members’ legal names, birthdates, addresses, and unique identifying number from an acceptable identification document such as a driver’s licenses or passport.
  • BOI must also be submitted by anyone with substantial control over the association’s financial reporting.

These details will need to be collected for each person who meets the beneficial owner criteria. Typically, this will involve the board members or officers of your HOA or condominium association.

Steps to Ensure Compliance

Given the potential penalties for non-compliance, it is critical for HOA and condominium association boards and their property managers to begin preparing now for Corporate Transparency Act compliance, especially if your board or manager has not yet made any preparations at all.

 Here are some concrete steps you can take to ensure your association is ready for the 2025 CTA deadline and beyond:

  1. Review Your Association’s Structure: The first step is to confirm whether your HOA or condominium association is structured in a way that requires compliance with the CTA. Associations that are incorporated (which is the vast majority in Michigan) will almost certainly need to comply. If your association is unincorporated, you may be exempt, but it is still important to review the CTA regulations with your association attorney carefully to be sure.
  2. Gather Beneficial Ownership Information: Start collecting the required beneficial ownership information (BOI) for all individuals who exercise significant control over the association. This is likely to include board members and officers of your Association. By gathering this information early, you will be better prepared to file your report before the looming deadlines.
  3. Update Your Governing Documents: Consider updating your association’s bylaws or governing documents to reflect the new requirements under the CTA. This could include creating policies for tracking beneficial ownership, setting internal deadlines for collecting information, and designating responsibility for filing the reports.
  4. Set Up Internal Deadlines: In short – Do not procrastinate until Christmas to start preparing! Set internal deadlines well in advance to ensure you will have all the necessary information and documentation ready for submission. You might consider holding a compliance check a few months before the official deadline to ensure everything is in order.
  5. Train Board Members and Staff: Make sure that board members and any property management staff understand the new CTA compliance requirements. Assign responsibility to a specific person or team to oversee the process, ensuring that all changes in beneficial ownership are tracked and reported within the 30-day window.
  6. Consult Legal Expert: To ensure compliance and avoid costly mistakes, consider consulting with an attorney who specializes in HOA or condominium law. They can help you navigate the nuances of the Corporate Transparency Act and provide advice on any exemptions or specific issues that might apply to your association.

The Risks of Non-Compliance

Failing to comply with the Corporate Transparency Act can result in severe penalties. Failure to submit can result in civil penalties of $500 per day and criminal penalties of up to $10,000 as well as up to 24 months in prison. These include fines of up to $500 per day for each day a report is late. By taking steps now to ensure compliance, your HOA or condominium association can avoid these risks and continue to operate smoothly.

Conclusion

The Corporate Transparency Act brings new reporting obligations for HOAs and condominium associations that must be met to avoid significant monetary and criminal penalties. By understanding the key deadlines, gathering beneficial ownership information, and setting up internal compliance processes, your association can be well-prepared to meet the January 2025 deadline with confidence.

For HOA and condominium association boards and managers currently navigating the complexities of the Corporate Transparency Act, expert legal guidance is essential.

With over 20 years of experience in community association law, Omnus Law Attorney Sheena S. Fioritto provides association boards and managers across Michigan with tailored legal solutions and the prudent, community-centered counsel they need to best protect the interests of their communities.

For personalized assistance, contact Sheena today at (248) 770-2590, or via email at sheenafioritto@omnuslaw.com to help ensure that your association is fully prepared to meet these new reporting requirements.

[1] Incorporated associations may, in certain instances, qualify for an exemption from the reporting requirements. For example, HOAs recognized by the IRS as section 501(c)(4) social welfare organizations (or that claim such status and meet the requirements) may qualify for the tax-exempt entity exemption.  Incorporated associations that do not qualify as section 501(c)(4) organizations for income tax purposes (which is the vast majority of community associations in Michigan) fall within the “reporting company” definition and therefore are likely required to report BOI to FinCEN.  (Source: Beneficial Ownership Information | FinCEN.gov – Updated June 10, 2024)