May 2024 Foodman Website and JD Supra
HOAs are reporting companies HOAs son Empresas Reportantes

On 4/18/24, FinCEN updated its Beneficial Ownership Reporting FAQs and included for the first time information regarding HOAs (Home Owners Associations). FinCEN confirms in this update that HOAs are reporting companies under the Corporate Transparency Act (CTA) and are subject to BOI (Beneficial Ownership Information) reporting requirements if they are entities created by filing of a document with a secretary of state or similar office. HOAs that were not created by the filing of a document with a secretary of state or similar office are not subject to BOI reporting requirements. Despite the fact that many HOAs operate as non-profit organizations, most HOAs do not qualify as “Exempt” under the Internal Revenue Code Section 501(c)(3). HOA Community Ownership is encouraged to “look up” their HOA in the IRS “Search for tax exempt organizations” to verify the status of their particular HOA. If the HOA does not qualify as a qualifying non-profit charitable organization under Section 501(c)(3) of the Tax Code, it is considered a best practice for HOAs to comply with the BOI reporting requirements given that FinCEN just signaled that HOAs are Reporting Companies under the CTA.

Excerpts from FinCEN BOI FAQs related to HOAs are Reporting Companies

  1. 10. Are homeowners associations reporting companies?

It depends. Homeowners associations (HOAs) can take different corporate forms. As with any entity, if an HOA was not created by the filing of a document with a secretary of state or similar office, then it is not a domestic reporting company. An incorporated HOA or other HOA that was created by such a filing also may qualify for an exemption from the reporting requirements. For example, HOAs designated as 501(c)(4) social welfare organizations may qualify for the tax-exempt entity exemption. An incorporated HOA that is not designated as a 501(c)(4) organization, however, may fall within the reporting company definition and therefore be required to report BOI to FinCEN.

  1. 13. Who is the beneficial owner of a homeowners association?

A homeowners association (HOA) that meets the reporting company definition and does not qualify for any exemptions must report its beneficial owner(s). A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25 percent of the ownership interests of a reporting company.

There may be instances in which no individuals own or control at least 25 percent of the ownership interests of an HOA that is a reporting company. However, FinCEN expects that at least one individual exercises substantial control over each reporting company. Individuals who meet one of the following criteria are considered to exercise substantial control over the HOA:

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

Despite FinCEN’s clarification, it is still unclear exactly how the reporting of an HOA will work once established that the HOA is a Reporting Company. The Community Association Institute is concerned about the lack of clarity and states that: “It is unclear whether a community manager and/or management company qualify as an individual with substantial control.  This is yet to be confirmed. CAI will continue to evaluate this and provide guidance accordingly.”

That said, HOA Community association managers, boards of directors and management firms should be prepared for the reality that HOAs are Reporting Companies under the CTA; at least for now until FinCEN issues further guidance.

Remember this

Individuals face penalties for violating BOI reporting requirements. A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues. A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

Are you an HOA Community Owner and are concerned about the reporting requirements of your HOA?

Is your HOA ready to comply with BOI reporting?

Does your HOA have a Corporate Governance Expert? ©