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One of the hottest topics in the HOA-world over the past year has been the implementation of the Corporate Transparency Act (CTA). Although enacted by Congress in 2021, registrations under the CTA became mandatory for newly formed HOAs on January 1, 2024, and will be mandatory for all incorporated HOAs on January 1, 2025. The Community Associations Institute (CAI), which advocates for HOAs, has stated it will file a lawsuit this summer challenging the applicability of the CTA to HOAs.

The CTA’s stated goals are “preventing money laundering, the financing of terrorism, proliferation financing, serious tax fraud, and other financial crime.” I don’t think anyone would disagree with those goals or the concept of transparency into who actually exercises control over corporations, but HOAs are nonprofit corporations that serve very limited purposes and roles. The officers and directors of HOAs are most often volunteer homeowners serving their own neighborhoods.

Financial crimes related to HOA assets are definitely possible, and in the span of my career, I have witnessed multiple acts of fraud and theft from HOAs, but HOAs usually deal in relatively small sums of money, and local authorities are capable of investigating and prosecuting those crimes. Perhaps the inclusion of HOAs as mandatory reporting companies in the CTA is overly burdensome in comparison to the likelihood that crimes like money laundering and financing terrorism will occur with HOA accounts.

Let’s hope that CAI’s lawsuit is persuasive and will achieve the result of excluding HOAs from reporting under the CTA.

 

In June 2024​, the CAI Board of Trustees approved filing a lawsuit to exempt and protect community associations from burdensome requirements outlined in the Corporate Transparency Act.
CAI – Corporate Transparency Act Resource Page

 

CONTACT:

Jennifer MartinJennifer Martin I  512.370.2883  I  jlmartin@winstead.com

Jennifer Martin is a member of Winstead’s Real Estate Development & Investments Practice Group. She has extensive experience representing HOAs, homebuilders, developers, and investors in planned community and condominium law.