The Corporate Transparency Act (CTA) has become a hot button issue in the HOA industry. Trade groups such as Community Associations Institute (CAI) are actively seeking to avoid transparency by trying to carve out an exemption to CTA requirement for homeowners, condominium, and cooperative associations.
Federal courts are considering arguments from anti-transparency plaintiffs who claim the CTA is unconstitutional. And Congressional Republicans are sponsoring a bill to repeal CTA.
What are corporations, including HOAs, trying to hide?
By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
Since IAC’s last update on the status of CTA, the battle against transparency continues.
Supreme Court of the United State (SCOTUS) ruled on whether or not to uphold one of the two preliminary injunctions on reporting of Beneficial Ownership Information (BOI) under CTA. SCOTUS justices ruled 8 to 1 that the preliminary injunction should be reversed (lifted) — in other words, the court overruled the injunction in the Texas case.
It’s important to clarify that SCOTUS did not decide on the merits of the case to overturn CTA of the Money Laundering Act. In other words, the court was not asked at this time to rule on whether or not CTA is Constitutional.
But…two different federal courts have granted an injunction on CTA enforcement. The second case is still active and was NOT considered by SCOTUS. What that means is that FinCEN cannot force US corporations (including HOAs) to file BOI at this time.
The government has an appeal that is scheduled to be heard in the 5th Circuit Court on March 25.
The industry, to include SBA (Small Business Administration) and CAI (Community Associations Institute), is fighting this battle on two fronts. Industry’s first effort was to take it to the courts, to get CTA declared unconstitutional. That legal case is not yet settled, although it is being fast-tracked, and will likely end up at the US Supreme Court to decide the merits of the case.
In the meantime, a federal bill, S. 100, has been filed by Sen. Tommy Tuberville, (R-AL) to repeal the CTA. As of the publish date of this update (Jan. 29, 2025), I tried to view the text of the bill, but it wasn’t yet posted on the website.
However, readers need to know that S. 100 has 25 cosponsors (all of them Republican) which you can view here. The bill is currently in the Senate Committe of Banking, Housing, and Urban Affairs.
IAC Commentary
Why would these 25 Republican Senators want to reduce corporate transparency and hinder tracking of potentially nefarious activities in shell corporations? This is a complete mystery to me.
Here’s why I am concerned about S. 100.
Even if SCOTUS ultimately rules in favor of keeping CTA and allowing FinCEN to enforce filing of BOI by businesses and corporations, the industry will use S. 100 as a placeholder for federal legislation to attempt to undo the 2021 CTA.
And if the anti-CTA advocates cannot get Congress to fully repeal the law, they can use other tactics to try and neutralize its effect. For example — they can try to reduce or eliminate the fines for noncompliance or create exceptions for certain corporations.
Of course, given the enormity of President Trump’s agenda, Congress may remain apathetic on this issue, and the bill will either not progress or die in committee. We can only hope.
Ultimately, the effectiveness of any regulatory law is determined by its level of enforcement. Even if CTA remains as is, surviving court challenges and maintaining its original legislative intent, the federal government (FinCEN) will need to be serious about enforcement and keeping their database up to date.
This story is still developing. Watch for future updates.
For readers who missed previous reporting on CTA and CAI’s influence, keep reading.
REPRINTING OF PREVIOUS CTA NEWS
Since the beginning of 2024, certain trade groups have been fighting against reporting of Beneficial Ownership Information (BOI) under the Corporate Transparency Act. The CTA is an effort spearheaded by the Financial Crimes Enforcment Network (FinCEN) of the U.S.
In short, FinCEN seeks to build a nationwide database that identifies all of the owners of corporations in the U.S. The FinCEN database would limit access to its investigators. It will not be a public records database. The purpose of gathering information about corporate owners is to deter and help identify incidents of money laundering and domestic and foreign terrorism.
The federal law sets a deadline of January 1, 2025, for filing BOI under the CTA.
HOAs are required by CTA to file BOI by deadline
FinCEN has confirmed that HOAs (including condominium and co-op associations) are required to file the names, addresses, and copies of photo ID for each BOI of the HOA. In this case, that would include board members and possibly management agents.
Community Associations Institute is one of several organizations that is suing the Department of the Treasury and Janet Yellin, claiming that CTA is unconstitutional. CAI insists that filing BOI is unnecessary and expensive for HOAs and claims that HOAs aren’t likely to engage in fraud and money laundering through the use of shell corporations. (LLCs)
These claims are laughable, in my opinion. It’s obvious that HOA real estate is a primary avenue for money laundering and fraud through the use of LLCs.
What are corporations trying to hide?
It’s important to emphasize that FinCEN seeks basic identifying information from owners and directors of corporations. Americans provide the same information and much more when they file their taxes, apply for credit, and apply for a job.
Furthermore, the identity of beneficial owners of shell corporations (LLCs) is only available to law enforcement, not to the general public. If beneficial owners are not engaging in illegal or unethical activities, then why are they so desperate to hide their identities?
A commonsense appraisal of the big picture
In fact, why can’t owners and residents of HOAs know the identities of all beneficial owners of not only the HOA corporation, but also their management company, developers and homebuilders, and numerous contractors and service providers?
Why can’t consumers always know the names of the people behind any corporation? Why should the owners and directors of corporations have the legal right to hide behind a cloak of anonymity?
Obviously, trade groups like CAI, SBA, and others don’t want us to expose their conflicts of interest, their selfish and greedy motives, and potentially nefarious dealings.
Lawsuits against FinCEN challenge CTA’s constitutionality
Nevertheless, several lawsuits in circuit courts around the nation have resulted in conflicting rulings by judges. Courts in the Eastern District of Texas and Northern District of Alabama agree with the Plaintiffs that CTA is unconstitutional. Specifically, the court claims that Congress exceeded its authority in enacting the law.
However, courts in the District of Oregon and Eastern District of Virginia have ruled that the CTA is constitutional, and it is within the authority of Congress to enact the CTA in its capacity to fight money laundering.
As of December 5, 2024, a federal court in the Eastern District of Texas issued a nationwide injunction against FinCEN, denying the agency’s right to enforce compliance with BOI filing under CTA, pending the outcome of litigation. So, for now, FinCEN cannot impose punitive fines and possible jail time for failure to file BOI by the deadline.
Due to conflicting rulings, the matter of CTA’s constitutionality and enforceability may ultimately be decided by the U.S. Supreme Court. This is a developing story.
CTA references
The constitutional arguments surrounding the CTA are complex. I have provided several reference links to help readers better understand the controversy and implications for the future.
Corporate Transparency Act: FAQ
Corporate Transparency Act | Community Associations Institute
FinCEN Corporate Transparency Act Homeowner Associations | HOAs
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