How can government bodies accurately track a corporation’s profits? From owners to shareholders, there are many beneficiaries of a company’s success. If this information is not tracked correctly, it can create potential avenues to exploit or otherwise illegally profit from business revenue.
The 2021 Corporate Transparency Act (CTA) was introduced to address this, requiring companies to file Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). While the requirement was intended to curb activities such as money laundering and corporate fraud, many smaller organizations also met the criteria for submitting BOI reports. Read on to learn about the effect of the Corporate Transparency Act for HOAs and how associations can use insurance to help protect themselves.
Corporate Transparency Act for HOAs
Homeowners associations, housing cooperatives, and similar organizations serve their communities. They are usually established as state non-profits and likely accidentally have fallen under the requirements for the CTA’s reporting guidelines. Today, more than 350,000 homeownership non-profit organizations nationwide are required to submit BOI reports.
Despite FinCEN refining its FAQs, ambiguity remains for HOAs. New clarifications indicate that HOA governance roles identify individuals as beneficial owners, necessitating BOI disclosure. This development has created significant compliance challenges for these non-profit entities.
Who should submit a BOI report?
BOI reports identify individuals who directly or indirectly control a company. FinCEN uses this information to analyze financial transactions and detect wrongdoing. Not all entities must submit BOI reports; exemptions include banks, insurance companies, and public utilities.
Eligible reporting companies include:
- Domestic Companies: Corporations or similar organizations created by filing with a secretary of state
- Foreign Companies: Legal entities registered to do business in the U.S. through a similar filing
Most HOAs must file BOI reports because they operate as non-profits but do not qualify as charitable organizations under the tax code. Non-compliance can result in penalties for beneficial owners or the association, though tax-exempt HOAs are exempt from these requirements.
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What should companies report?
The Corporate Transparency Act for HOAs requires the submission of BOI reports annually to FinCEN. They must identify beneficial owners, individuals influencing a company’s decisions, or those holding at least a 25% share.
Required information includes:
- Business name
- Identifying information for board members (date of birth, address, driver’s license number, state ID, or passport)
- Identifying information for individuals with substantial control over financial reporting
- Any changes or corrections within 30 days of awareness
This detailed information helps FinCEN maintain a clear record of individuals with significant influence or control within various organizations.
Are there penalties for non-compliance?
Penalties for non-compliance are severe and adjust for inflation.
- Civil Penalties: Up to $500 per day for missed or incorrect filings
- Criminal Penalties: Fines up to $10,000, imprisonment up to two years, or both
Individuals, such as senior officials, can also be penalized for the association’s non-compliance or for causing an association to fail to submit accurate and timely BOI reports.
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Who is responsible for reporting?
HOAs should identify beneficial owners with over a 25% stake and individuals with significant control, such as:
- Investors owning multiple community assets
- Board members
- Majority shareholders
Reports can be submitted electronically to FinCEN by any authorized person, such as an employee, owner, or third-party provider. Over-disclosing information is better than under-disclosing to avoid penalties as updates come in around the Corporate Transparency Act for HOAs.
Protect HOAs with McGowan Community Association Insurance
Understanding and complying with the reporting guidelines of the Corporate Transparency Act for HOAs is a significant task for associations. Associations must educate beneficial owners on their responsibilities and stay updated on new FinCEN clarifications. Mistakes can lead to severe penalties for associations and beneficial owners.
Investing in McGowan MPA’s Community Association Insurance can safeguard against these penalties. Proper insurance coverage supplements basic HOA plans with crime and fraud protection. Directors & Officers insurance can protect board members from liability for misfiled BOI reports. McGowan’s Community Associations Package Insurance offers additional coverage for ordinance and law, loss of income, and more.
McGowan is a leading community association and HOA insurance provider, offering experienced personnel and a robust insurance portfolio to help protect HOAs and guide them through potential pitfalls. Their services include specialized coverage that addresses the unique risks community associations face, ensuring comprehensive protection.
