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Corporate Transparency Act Reporting Requirements: What Do Illinois Community Associations Need to Know?

Date

February 7, 2024

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5 minutes

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This article was originally published on September 20, 2023

In 2021, Congress enacted the Corporate Transparency Act (“CTA”) in an effort to protect the U.S. financial system from illicit use. Generally speaking, the CTA requires business entities operating in the U.S. to report certain information regarding their beneficial owner(s). The CTA took effect on January 1, 2024, and imposes certain reporting requirements by January 1, 2025. Click here for LP’s general primer on the CTA. Notably, the CTA’s reporting requirements are very broad and likely extend to most condominium and community associations and co-ops. Specific questions regarding the CTA for condominium and community associations and co-ops are answered below.

Wait, Does the CTA Really Apply to My Condominium, Community Association or Co-Op?  

Most likely, yes. 

There are twenty-three types of entities that are exempt from the CTA’s reporting requirements, including organizations that file their annual tax returns under Section 501(c) of the Internal Revenue Code (“Code”); however, the vast majority of condominium and community associations and co-ops file their annual tax returns under Section 528 of the Code, which would not qualify for an exemption from—and are thus subject to—the CTA reporting requirements. It is a recommended best practice to check with the tax preparer for your condominium, community association or co-op to confirm whether it is exempt from the CTA’s reporting requirements (i.e., whether an “1120-H” tax return is filed under Section 528 of the Code such that the reporting requirements apply).

Note: There is talk (and even lobbying efforts by industry professionals) that all condominium and community associations and co-ops may be exempted from the CTA reporting requirements in the coming months; however, at present no such expanded exemption has been adopted and thus absent a new exemption, the CTA reporting requirements will apply to most condominium and community associations and co-ops.    

So, the CTA Applies to My Condominium, Community Association or Co-Op; What Do We Need to Report?

Entities subject to the CTA must report certain information for the entity as well as its “beneficial owners.” Condominium and community associations and co-ops that are subject to the CTA must report their corporate entity name, address, state of formation and employer identification number (EIN). In addition, the following ownership information must be reported for each beneficial owner of the association:

  1. the individual’s legal name;
  2. the individual’s birthdate;
  3. the individual’s address (in most cases, a home address); and
  4. an identifying number from a driver’s license, passport, or other approved document, as well as an image of the relevant document.

Per the current regulatory guidance, this information must be submitted electronically to the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”).

Who Qualifies as a “Beneficial Owner” of a Condominium, Community Association or Co-Op?

A beneficial owner is anyone who (i) exercises “substantial control” over the entity, including Board members; or (ii) owns or controls at least 25% of the ownership interest. Notably, this means that individual Board members will need to provide the beneficial ownership information listed above. In addition, if there is a “bulk” owner that owns 25% or more of the ownership interest of a condominium, community association or co-op, the bulk owner would also qualify as a beneficial owner and be subject to these reporting requirements. 

When is the Initial CTA Reporting Deadline?

Condominium and community associations and co-ops that are in existence as of January 1, 2024 and are subject to the CTA’s reporting requirements must submit the required information to FinCEN on or before January 1, 2025. 

Note: It is possible that the effective date of the CTA and the initial deadline for reporting will be pushed back in the coming months to give additional time for entities to prepare for this new reporting requirement.

What if Beneficial Owner Information Changes? Do We Need to Report It?  

Yes. Future changes to beneficial ownership information must be reported to FinCEN within 30 days of the change becoming effective. Corrections to previously filed reports must be reported within 30 days of becoming aware of or having reason to know of an inaccuracy. This requirement is particularly onerous for condominium, community association and co-ops, as an updated filing may be required whenever there is a change in the composition of the board, such as the election or appointment of a new board member.

Are there Penalties for Failing to Comply with the CTA Reporting Requirements?

Yes. Any person who willfully provides false or fraudulent beneficial ownership information to FinCEN or willfully fails to report complete or updated beneficial ownership information to FinCEN is liable for a civil penalty of up to $500 per day that the violation continues and may be fined up to $10,000 and / or imprisoned for up to two years.

Takeaways

  • The CTA is a new law with far-reaching reporting requirements that, in their present form, extend to most condominium and community associations and co-ops.
  • Condominium and community associations and co-ops that are subject to the CTA will be required to disclose certain entity and board member (i.e., beneficial owner) personal information by January 1, 2025, and update this information on an ongoing basis.
  • It is possible that the reporting deadline will be pushed back and / or condominium and community associations and co-ops will be exempted from the CTA reporting requirements altogether.  In the event of any such update to the CTA, expect to see additional guidance from LP. 
  • For now, condominium, community association and co-op boards should be aware of this new development in the law and work with their accounting, management and legal professionals to prepare for the January 1, 2025 reporting deadline. 

LP is committed to keeping our community association clients informed of, and prepared to proactively and successfully navigate, any changes in the law. For questions regarding the CTA, including reporting requirements, or other issues facing your condominium or community association or co-op, please contact Howard Dakoff, Laura Marinelli, Adam Kahn, or Molly Mackey of LP’s Community Association Group.


Filed under: Community Association

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