Effective Jan. 1, 2024, most U.S. corporate entities will be required to report to U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA) which was enacted by Congress in 2021 as an expansion of the anti-money laundering laws to prevent terrorist financing, corruption, tax fraud, and other illicit activity.
While we do not think the Act was intended to apply to condominium owner’s organizations, many of which take the form of or are akin to a corporate structure, we believe that it does apply and are advising condominiums to comply with the reporting requirements of the act. Hopefully, FinCEN will tire of receiving reports from Condominium Associations across the country and create a specific exemption. But that exemption does not exist right now.
We believe that the reporting requirements clearly apply to any incorporated or unincorporated associations. Most condominium associations in Massachusetts take the form of Trusts. There is questionable applicability of the act to Trusts. However, the Massachusetts Condominium Trust is not a traditional Trust and has often been analogized by our courts to corporations. Our advice, when in doubt report.
Who Does This Apply To?
Anyone who qualifies as a Reporting Company, a Company Applicant, and a Beneficial Owner.
A Reporting Company is a corporation, a limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of the state (we believe that this is where Condominium Trust’s might have a reporting requirement, as they are recorded at the Registry of Deeds and annually update their Trustees with a similar recording), or a foreign entity formed under the laws of a foreign country registered to do business in any U.S. state or in any Tribal jurisdiction. This includes currently existing entities, regardless of their date of formation.
Although the CTA was likely enacted to target businesses, Condos and HOAs qualify as a Reporting Company since the filing of a document with Registry of Deeds is required under M.G.L. c. 183A.
Some companies are exempted including certain charitable organizations, however, condominiums and HOAs are not explicitly on the exemption list. We believe charities are exempt as they already have onerous reporting requirements.
A Company Applicant may be up to two individuals: 1) the individual who is primarily responsible for directing or controlling the filing an application to form or register a corporation, limited liability company, or other similar entity under the laws of a state or Indian Tribe; and 2) the individual who directly files the document to create or register the Reporting Company. This only applies to Reporting Companies created or registered on or after Jan. 1, 2024.
A Beneficial Owner is anyone who (1) directly or indirectly exercises substantial control over the Reporting Company, or (2) owns or controls at least 25% of the ownership interests of the Reporting Company. An individual has “substantial control” if they direct, determine, or exercise substantial influence over important decisions the reporting company makes (i.e. condominium unit owners).
What Information Must Be Reported?
A Reporting Company must report:
- Its legal name, and any trade name or assumed name (DBA);
- Its address;
- The jurisdiction in which is was formed or first registered; and
- Its taxpayer identification number.
A Beneficial Owner and each Company Applicant must report in a Beneficial Owner Information Report (BOI Report):
- The individual’s full legal name;
- Their birthdate;
- Their residential address;
- A unique identifying number from a non-expired driver’s license, identification document, or U.S. passport (a non-expired foreign passport is acceptable if the individual does not possess one of the other documents); and
- An image of that identification document.
What does a Condominium Have to Report?
We believe that the definition of beneficial owner requires the reporting information for the Trustees or the Board of Directors of the Condominium, HOA or CO-OP. Condominiums will need to consider reporting information for the Declarant or Developer if it continues to assert control over the Condominium and possibly information if an owner owns more than 25% of the beneficial interest.
When and How?
BOI Reports will be filed electronically through FinCen’s secure, cloud-based filing system called the Beneficial Ownership Secure System (BOSS). A Reporting Company created or registered before Jan. 1, 2024 will have one year to file its initial BOI Report. A Reporting Company created or registered on or after Jan. 1, 2024 will have 30 days to file its initial BOI Report. Companies will have 30 days to report any changes to the reported information.
How Will the CTA Be Enforced?
Violations of the reporting requirements include civil penalties of $500 per day (not to exceed $10,000) and imprisonment for up to two (2) years.
What Does This Mean For My Condo Trust or HOA?
Existing condominiums must file their initial BOI report in 2024.