Homeowner Associations, Condominiums, and the Corporate Transparency Act

Starting January 1, pursuant to the CTA, many entities are now required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The goal of the CTA is to identify and prevent the use of companies for criminal activities such as money laundering, tax fraud, and terrorism. Unlike most of our federal disclosure laws, this law has a very broad reach and touches even POAs.

Who Must Report?
With certain limited exemptions, the law applies to all corporations, limited liability companies, limited partnerships, and other entities created by filing a document with a secretary of state or a similar office. The exemptions generally apply to entities already subject to federal reporting, such as banks, insurance companies, and publicly traded companies. Notably, tax-exempt Section 501(c) organizations are also exempt from reporting under the CTA.

Are POAs Required to Report?
The CTA has no specific exemptions for POAs. In its published FAQs*, FinCEN recently clarified that POAs may be subject to the CTA’s reporting regime depending on the corporate form of the POA. If the POA was created by filing a document with a secretary of state, such as a corporation or an LLC, then it is subject to reporting unless an exemption applies. For example, a POA designated as a Section 501(c)(4) social welfare organization may be exempt from CTA reporting as a tax-exempt Section 501(c) organization. However, a POA that is a Section 528 organization or a POA with no particular tax status would fail to qualify for the tax-exempt exemption from CTA reporting.

What Must Be Reported?
In addition to basic information about the POA, such as its legal name and address, a POA that is not exempt from CTA reporting must disclose any “beneficial owner.” A beneficial owner is defined as an individual who exercises substantial control either directly or indirectly, including all senior officers or an individual who owns or controls at least 25% of the ownership interests of the POA.

Who Are the Beneficial Owners of a POA?
FinCEN has clarified that POAs subject to CTA reporting must identify at least one individual who exercises substantial control over the POA as a beneficial owner. Individuals who meet one of the following criteria are considered to exercise substantial control over the POA:

• The individual is a senior officer
• The individual has authority to appoint or remove certain officers or a majority of the directors of the POA
• The individual is an important decision-maker
• The individual has any other form of substantial control over the POA

In most cases, the members of a POA’s board of directors are considered the beneficial owners because they exercise substantial control over the POA. For developer-controlled POAs, the declarant (or an individual who controls the declarant) may need to be identified as a beneficial owner.

How Can We Help?
Our firm has a dedicated CTA Compliance Team available to assist with CTA matters. We can advise your POA on the following:

• Determining whether the POA is exempt from reporting
• Determining the beneficial owners
• Gathering the information that must be reported and assisting with filing
• Determining whether a corrected or updated report must be filed
• Updating operating, shareholder, and management agreements to ensure that the POA is able to obtain the necessary information to comply with the reporting rules
• Advising on the use of FinCEN identifiers

For questions about this alert, please contact the authors or the CTA Compliance Team via email at CTA_Compliance@Steptoe-Johnson.com.

Notes
*Available at https://www.fincen.gov/boi-faqs