With the Corporate Transparency Act (CTA) taking effect, many Homeowners Associations (HOAs) are grappling with new compliance requirements. While traditionally viewed as entities that operate within their communities, HOAs are now required to file Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). This blog post addresses some of the most common questions HOAs have about BOI filings and covers the recent legal challenge by the Community Associations Institute (CAI) regarding the CTA.

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Do Homeowners Associations (HOAs) Have to File a BOI Report?

Yes, around 99% of HOAs will need to file a BOI report. The only major exemption applies to HOAs classified as 501(c) non-profits, which are not required to file under the CTA. Most HOAs, however, do not meet this exemption and must comply with BOI reporting to avoid penalties. Filing a BOI report ensures compliance with federal regulations, helping to avoid fines and legal consequences.

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For additional details on the specifics of BOI reporting requirements, visit FinCEN’s FAQ section on their official website.

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How Do I Know if My HOA is a 501(c) Non-Profit?

Since the majority of HOAs are not tax-exempt, they will need to file a BOI report. However, if you want to verify if your HOA is one of the few exempt from filing due to 501(c) status, here’s how:

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• IRS Determination Letter: If your HOA is recognized as a 501(c) non-profit, you would have received a formal determination letter from the IRS. This letter serves as confirmation of your HOA’s tax-exempt status.
• Tax Filings: Non-profit organizations, including 501(c) HOAs, usually file IRS Form 990 (Return of Organization Exempt From Income Tax) annually. If your HOA files Form 990 instead of a standard corporate tax form, it is recognized as a 501(c) non-profit.
• IRS Contact or Database Search: If you’re unsure about your HOA’s tax status, you can contact the IRS directly or search the IRS Exempt Organizations database to confirm.

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If an HOA cannot locate a determination letter or has filed corporate tax forms instead, it likely does not have 501(c) status and will need to file a BOI report.

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Why Do HOAs Have to File?

HOAs must file under the CTA due to their legal entity structures, typically as corporations or LLCs, even though they do not have “owners” in the traditional business sense. Here’s why they are included:

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• Entity Structure: Many HOAs are structured as corporations or LLCs, which generally fall under the CTA’s filing requirements. This includes entities formed to manage assets, enforce community rules, or provide services. Under the CTA, most corporations and LLCs are required to report, regardless of profit orientation.
• Transparency Goals: The CTA is designed to prevent illicit activities like money laundering, fraud, and tax evasion. By requiring all registered corporations and LLCs to file, the CTA ensures a broad net of transparency across various types of entities. Even though an HOA’s primary function is community-focused rather than profit-driven, it is still legally obligated to report.
• 501(c) Exemption: HOAs with 501(c) non-profit status are generally exempt from this requirement, but since most HOAs do not qualify as 501(c) non-profits, they will need to file or confirm their status to avoid penalties.

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This broad inclusion in the CTA is to prevent any registered entity from being used to obscure control or financial activities, even if its purpose, like that of an HOA, is not to generate profit.

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Recent Legal Challenge: CAI’s Lawsuit and the Court Ruling

In an attempt to block the CTA’s application to HOAs, the Community Associations Institute (CAI) filed a lawsuit against the U.S. Treasury Department. This legal action aimed to ease the compliance burden on community associations, arguing that the CTA’s requirements were overly broad and not suited to entities like HOAs.

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However, on October 24, 2024, the U.S. District Court for the Eastern District of Virginia denied CAI’s request for a preliminary injunction, which would have paused enforcement of the CTA for HOAs and similar organizations. As a result of this decision, community associations are still required to comply with the CTA’s BOI reporting requirements by the upcoming January 1, 2025 deadline.

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This ruling means HOAs must prepare for the administrative responsibilities involved in filing a BOI report. Failure to file could result in penalties, including daily fines, making it critical for HOAs to ensure compliance.

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Conclusion

The Corporate Transparency Act represents a significant regulatory shift for community associations, requiring many HOAs to navigate new compliance obligations. While CAI’s recent legal challenge aimed to reduce the reporting requirements, the court’s decision means that most HOAs must still file a BOI report unless they are a 501(c) non-profit. By staying informed and acting early, HOAs can minimize their risk of penalties and ensure that they meet the new compliance standards by the deadline.

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