On September 10, 2024, Community Associations Institute filed a lawsuit against the United States Department of Treasury challenging the application of the Corporate Transparency Act beneficial ownership interest filing requirements on community associations.
After extensive efforts to work with the U.S. Department of the Treasury and the Financial Crimes Enforcement Network and to lobby for the securing of an exemption, CAI filed a lawsuit against the Treasury Department.
The lawsuit challenges the application of the CTA to community associations and highlights several key issues:
- Exemption from the Corporate Transparency Act: Communities should be exempt from the act’s reporting requirements, as they are considered nonprofit organizations under section 528 of the IRS code.
- Improper Rulemaking Procedures: FinCEN issued FAQs without following proper notice-and-comment procedures required by the Administrative Procedure Act, making these rules invalid.
- Arbitrary and Capricious Action: FinCEN’s refusal to exempt community associations from the CTA is arbitrary and capricious, as it fails to consider the low risk of illicit financial activity by such entities.
- Constitutional Violations: The act violates communities’ constitutional rights under the Fourth, Fifth, and Ninth Amendments by requiring invasive personal disclosures without adequate privacy protections or sufficient cause.
- Overreach of Federal Powers: The act unlawfully usurps state authority to regulate corporate formation and governance, exceeding the federal government’s constitutional powers.
- Equal Protection Violation: The act discriminates against community associations by not exempting them as nonprofit organizations, unlike similar entities under section 501(c) of the IRS code.
To protect our members, CAI seeks a judicial review of our exemption request and asks the court to declare the act inapplicable to community associations. Alongside this, CAI has filed for a preliminary injunction to halt the application of the act until a final court ruling is made.
The Corporate Transparency Act deadline for compliance of January 1, 2025 remains and community associations should be prepared to file. For more information and to stay informed, visit www.caionline.org/cta.
This article is not clear https://uccai.com/blog/corporate-transparency-act-officially-effect
It states that HOA’s with less than $5 million in revenue and less than 20 employees that file a 1120 tax return are exempt from filing. Please explain if this means exempt from filing on January 2025 or exempt permanently. Do you have a reference?
Thank You
I strongly oppose the CAI lawsuit against the United States Department of Treasury for exempting HOAs from the compliance with Corporate Transparency Act.
This lawsuit has no legal or substantive merit. The Corporate Transparency Act aims to prevent financial crimes and enhance transparency of HOAs governance, presents no notable inconvenience or financial burden for HOAs, and could actually benefit them by ensuring better governance and accountability.
It is possible that if the Corporate Transparency Act had been in effect before June 24, 2021, the tragic collapse of the Surfside condominium in Florida, which resulted in the loss of 98 lives, could have been prevented.
The Community Associations Institute (CAI) must abstain from advocating noncompliance with state laws and fomenting anarchy among its members, particularly HOAs board members. It has been and continues to be evident in Texas.
THe CTA would have had no bearing on the June 24, 2021 condominium collapse in Florida. Tragic as it was…it has nothing to do with the CTA. This new requirement is more about the prevention of money laundering and other federal financial crimes. Board members are volunteers and doing the best they can on behalf of its’ owners…which by the way they are owners also. This CTA requirement is an inconvenience at best of providing personal information…which will also cost the association (all condo owners) for the expense to have it done each year…and every time there is a change out of board members.
Good Afternoon. I would like to know about your organization and CTA ?
Please call me when you’re free?
Michael
602-885-2536
I strongly oppose the CAI lawsuit against the United States Department of Treasury for exempting HOAs from the compliance with Corporate Transparency Act.
This lawsuit has no legal or substantive merit. The Corporate Transparency Act aims to prevent financial crimes and enhance transparency of HOAs governance, presents no notable inconvenience or financial burden for HOAs, and could actually benefit them by ensuring better governance and accountability.
It is possible that if the Corporate Transparency Act had been in effect before June 24, 2021, the tragic collapse of the Surfside condominium in Florida, which resulted in the loss of 98 lives, could have been prevented.
The Community Associations Institute (CAI) must abstain from advocating noncompliance with state laws and fomenting anarchy among its members, particularly HOAs board members. It has been and continues to be evident in Texas.
I totally support your position against the CAI. The Corporate Transparency Act will provide the transparency that some HOA’s are unwilling to provide without undue efforts, if at all. The funds of the HOA are provided by the HOA members and as such should be readily available for the HOA members to review.
The Corporate Transparency Act is part of the 2020 Anti-Money Laundering Act, which in turn was part of the National Defense Authorization Act for Fiscal Year 2021.
The goal of the reporting requirements is to create a database that would provide resources to crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals. In other words, they’re going after the professional “bad actors” who are engaged in serious criminal behavior that spans the globe.
The government has no interest in incompetent boards or homeowners who continue to vote down assessment increases, to the detriment of their communities. It is naïve to think that the reporting requirements will suddenly result in improved community association governance.
If anything, they are likely to create a chilling effect on homeowners’ willingness to serve on their communities’ boards. Far too many associations, especially condominiums, have trouble filling all of their board seats now, and they often operate on the thin edge of being unable to lawfully conduct business at all.
If the Corporate Transparency Act improves community association governance at all, it will probably be due to the number of communities that go into receivership and end up being managed by professionals. This is the essense of unintended consequences.
Thank you for saying that, and in such a well thought out and professional way. I support everything you said as well as spot on. Thankfully this lawsuit is in progress and hope to see a resolution soon. The burden alone to comply just on an administrative level could cripple some these smaller community associations, as well as just to get the owners, especially seniors in a retirement community to understand let alone provide the personal information requested is troublesome. This act was meant for an entirely different industry of Corporations and as such, this mistake needs to be corrected immediately.