Everything You Need
to Know About the
Corporate Transparency Act

Episode Blog

INTRO: on this week’s episode of CACM chat HOA life to hear exclusive insights and expert perspectives on community association management from leaders across California. This podcast is about the hard work that managers do to positively impact the lives of more than 15 million residents living in over 50,000 homeowner associations across California.

TOM: Hey, welcome back to all of you out in podcast world to another episode of the CACM chat HOA life podcast, where no HOA topic is off limits. We’re going to take that to a different level today. Now for those listeners around the country, CACM is focused on California Homeowner Association Management, but often there are federal statutes or policies that have a negative impact on managers and homeowner associations or HOAs including in California.

One such current policy is both well-known in the HOA world and at the same time unknown, especially to board members of an HOA. I’m referring to the Corporate Transparency Act or CTA. Now, I know, I know, many of you might be thinking the CTA, what? Well, it’s a little confusing or very confusing if you haven’t heard of it yet. And in its current form, has a filing deadline of December 31st, 2024.

Now, we’re going to take a little bit of a dive into this act on today’s episode. And I’m not aware of anyone better or more knowledgeable to help us understand the CTA than Dawn Bauman with CAI National. And I’m super thrilled to be welcoming Dawn to this episode.

Now, for those of you not familiar, Dawn is the Senior Vice President of Government Affairs at…Government and Public Affairs, excuse me, for CAI National, and the Executive Director for the Foundation for Community Association Research. Dawn has worked for CAI for nearly 20 years at both the international and chapter level.

Dawn, my God. And here I thought I had a lot going on. Thank you so much for squeezing us into your schedule to discuss the CTA. How are you and welcome.

DAWN: Tom, it is so great to be here. Thank you so much for the opportunity. Thanks so much for inviting me.

TOM: So, help me and help our audience understand what is the CTA, where did it come from and why?

DAWN: Okay. So, thank you. The Corporate Transparency Act is part of a piece of legislation that passed in 2021 under the Anti-Money Laundering Act. So, the Corporate Transparency Act passed 2021 and what that act does… is it requires all businesses, all corporations to file information about their beneficial owners, and we’ll talk about that in a minute, with the Department of Treasury and a subset of the Department of Treasury Financial Crimes Enforcement Network, file with them all the information about beneficial owners. And so, this passed in 2021. It didn’t catch our attention.

It didn’t catch most small businesses attention. And all of a sudden, we had people coming to us and our legislative team said, hey, this legislation passed. It might impact community associations because they’re incorporated. So, the Corporate Transparency Act and their filing requirements applies to most small businesses that are incorporated.

Unless they’re under a specific exemption. And these small businesses that are incorporated could be nonprofit corporations or other small business corporations incorporated at the state level. There are 23 exemptions that exist. A couple of them might apply to community associations like 501C4 community associations are exempt from this filing.

In addition, Community associations that have more than $5 million in annual revenue as of last year’s tax filing and 20 employees are exempt from this filing. Some of those large communities might be exempt. Otherwise, this applies to community associations. And the purpose of the Corporate Transparency Act from the federal government standpoint, why it was passed, was to try to build a, the attempt was, let’s build a database where the federal government has access to information about people who are part of corporations that might be involved in money laundering for terrorism or illicit activity, drug trafficking, et cetera.

So, if we, the federal government, require that this filing happens, we’re going to be able to use this database to identify drug trafficking, illicit activity, terrorist activity, money that’s being sheltered for that. Community Associations Institute, our organization, Tom, I’m not going to speak for you, but my guess is CACM might agree, laudable. This is a laudable initiative.

Yes, we do not want corporations that are being used to shield funds for terrorist activity and illicit activity. However, community associations to be wrapped up in this, that’s what CAI is opposed to and that, we believe community associations are exempt and should be exempt. And I’m happy to talk about some of the efforts that we’re taking in that area. Now, part of the issue with the corporate transparency act, I’m sorry, Tom, part of the issue.

TOM: No, please.

DAWN: the penalties that go along with non-compliance. So, Tom, you mentioned at the outset, filing requirements for existing community associations, the deadline is December 31st, 2024. And those filing requirements, the requirements are all board members of community associations must file with FINCEN, which is the Financial Crimes Enforcement Network, under the Department of Treasury in this database, they must file their name, their address, a copy of their birthdate, a copy of their passport or their driver’s license.

And that must be filed with the organization, all members of the board of directors by December 31st, 2024. And if it doesn’t happen, they could be exposed to fines. The fines are $500 a day per individual up to $10,000 and time in jail. Now, what’s unknown is what about the board members that don’t want to comply?

Say, Tom, you and I are serving on a board together and you file and I’m like, I am not doing this. This is not, I’m not filing. Well, you would probably be held, I don’t know, I’m not a lawyer. You would not, you might be held responsible for me not filing because you’re fiduciary of your corporation.

Furthermore, if there’s a change in board, which how often does that happen? All the time. That change needs to be filed within, I think it’s 90 days of any change happening. That change needs to be filed. So, there are some penalties there that are of big concern to CAI and to our associations in general.

TOM: So, you said $5 million in revenue and 20 employees. Is it and or is it and or?

DAWN: It’s and. It’s and. $5 million in your last tax pay period, tax filing period in revenue and 20 employees. And those 20 employees have to be employees of the association. They can’t be employees of the management company.

TOM: So then if you’re, if you have one, if you are if you have either $5 million, but you don’t have you have a management company or you have your self-managed, you have 10 employees or 19 employees.

DAWN: You don’t qualify.

TOM: You don’t qualify.

DAWN: Nope

TOM: OK, so that’s valuable information in and of itself. Yeah. And is it filing supposed to be on an individual basis or is it supposed to be on a collective board basis?

DAWN: So that’s in question right now. And it’s not well understood. And it’s not well understood. the individual, the beneficial, the filing is called BOI, Beneficial Owner Information. And a beneficial owner of a community association is a member of the board of directors, whether you’re an executive board member or a member of the board of directors. And the individuals and the board must submit that information.

And so, what’s unclear, and we’ve been trying to get clarity from the Department of Treasury, who has oversight over this financial network, FinCEN, is, okay, what if they don’t do it? Like, who’s responsible? Is it the association that’s responsible? Is it the individual that’s responsible? And we haven’t been able to get clear information about that.

So of course, thinking about trying to be most protective and most conservative in the interpretation here, individual owners could be responsible for other owners not complying. And the association itself should have all directors complying with this requirement, with this filing requirement.

TOM: So, I know CAI has this on the forms and the information on your website. Can you share that website?

DAWN: Sure. We have a one page on our website that leads you to others, it’s www.caionline.org/CTA. And there’s a resource guide that gives guidance on what you should know for filing requirements for boards. It also gives a lot of information and connects links to the Department of Treasury and their website and some of the guidance documents that they’ve provided for homeowners’ associations.

It also gives a lot of information about history as well as our advocacy efforts and the lawsuit that we have that we’re currently pursuing against the federal government regarding the Corporate Transparency Act. So, there’s a of information on that page.

TOM: And I’ll come back to that in a second. CACM also has the filing forms and general information on our website, cacm.org under our resource section. You mentioned CAI spearheaded a lawsuit. Who was the lawsuit against and what was the purpose of it?

DAWN: Yeah, great question. So, we actually have three different prongs that we are approaching to try to get community associations exempt from this requirement. And we’ve been engaged in, heavily engaged in this activity for the last year and a half.

So first I’ll talk about the lawsuit because that’s what you’re asking right now. And then I’ll follow with the others. So, the lawsuit, so CAI filed a lawsuit back in September. The CAI board of trustees approved us filing a lawsuit against the department, the department of treasury, the federal government.

And our claim is that community associations should be exempt from the community, from the corporate transparency act for numerous reasons. And I’ll be really brief about this because our claim was like 65 pages. So, I’ll be brief about what our claim is. In the, in the corporate transparency act statute that passed.

There’s an exemption for nonprofit organizations. There’s an exemption for 501C nonprofit organizations. Well, a lot of community associations use the 528 tax filing for their IRS tax filing. And the 528 tax filing says any 501C benefits shall apply to 528 entities. And so, with homeowners associations and some condominiums being eligible for that 528, we believe that they are already exempt from the Corporate Transparency Act. We also have another, a couple of other claims regarding constitutionality application of the Corporate Transparency Act to community associations that we made.

The status of that lawsuit right now, we filed that lawsuit back in early September, we had a hearing for a preliminary injunction in October. The judge denied our hearing for that preliminary injunction, which means that the preliminary injunction was a request to the judge to say, “Hey, can you just tell everybody to let us stay status quo until the courts figure out the lawsuit,” which would-

TOM: Wouldn’t that be logical.

DAWN: That’d be great and logical, but I mean, we’re talking about bureaucracy and judges. it didn’t work. We knew it was a long shot and it didn’t work. We’re still pursuing that lawsuit. Actually, we have just filed a notice of appeal to that particular judge’s determination in hoping that we get another judge that will say, let’s just stay this case for a little bit while we see what else happens with the lawsuit.

Because the lawsuit, of course, could take a couple of years for the whole process to go through.

TOM: Well, as any lawsuit could take years, just part of that process. If you’re filing claims or I’m sorry, you’re filing an appeal to that decision is, and I know it’s like anything else, you try to sue the government, it’s a roll of the dice no matter what. Was there any bright light? Was there any positive information that you took out of the process, even to a point where it made sense to go ahead and file an appeal?

Because sometimes, you file lawsuits, you either, you lose the lawsuit, and then you just, look at it go, is it worth filing the appeal? Like, is it worth going through this next step? So, I’m assuming, and I guess it’s a direct question, did you find some advantages and areas that would make the appeal? Appealing for lack of a better phrase.

DAWN: Yeah, that’s a great question. And the answer is yes. So, two pieces came out of the that that preliminary injunction hearing that we had that provided us some level of hope in moving forward. The first was the judge recognized that community associations are different than almost every other not small business.

So, community associations being very narrowly focused on the purpose of that community and very local non-profits entity that that were much different than all the small businesses that are intended to comply with the Corporate Transparency Act. In addition, I do think that, you know, we were encouraged- We were encouraged by a variety of things, but we were encouraged because the Department of Treasury also continued to talk with us throughout the process about the possibility of providing community associations an exemption.

So, we, CAI, submitted a request to the Department of Treasury back in December of 2023 to exempt community associations from this act. And we followed the process that was outlined in the law for this exemption request. And we also then filed suit against the federal government, the same group, the Department of Treasury. And so, in the back and forth, they did recognize that community associations are different, that they are still considering our request for exemption.

We continue our legal team, our advocacy team continues to be engaged with the Department of Treasury and trying to urge them to give an exemption approval even outside of the court process. So, while we’re filing a suit against, we filed a suit against them and we’re suing them, we’re also negotiating with them and have been negotiating with the Department of Treasury, which is the federal government, for this exemption.

So, we’ll talk in a little bit about what we’re doing with the members of Congress as well.

TOM: Yeah, and I think we have a copy of this, the 2023, I think it was, came out of Congress, was signed by like 50 some odd senators.

DAWN: It was like 80. Yeah, like 80. I think it was 80 members of the House and Senate.

TOM: And Senate, yeah. And that was dated December 23rd of, or the 27th, I’m a little off on my specific date.

But it’s very, very late December, 2023, because at the time this CTA was supposed to be implemented January 1st of 2024, meaning this current fiscal year or this current calendar year. And I guess the treasury department agreed and looked at that letter and saw so many legislators just kind of going, yeah, you haven’t notified anybody. And I’m not aware of anybody. I have not been told specifically by any association or any management company that they did specifically receive notice.

So, I’m just kind of going, okay, well, if you didn’t notice them, how are we supposed to know? And I mean, how would we even know that this is an act, a law now that we’re supposed to comply with? So, for the benefit of the listeners, what would they do? Like there’s a lot of board members that listen to our podcast as well as managers and management companies, what would board members and or managers management companies do to file a complaint with their legislator? Like who would they reach out to? And would that be beneficial?

DAWN: Yes, it be very beneficial. Again, we so we have an area on our website. It’s that same web page www.caionline.org/CTA.

And there’s a take action, contact your member of Congress. So, there are a couple of things going on in Congress that, listen, we are just-

TOM: A couple of things as of today or specific to this?

DAWN: There are a couple things going on in Congress. I feel like I Just a little bit. When I say that. But yes, so we are just after the election. Listen, Tom, the election changes things a bit and we’ll get to that in a second. But, right now, 2024, what could happen before the filing date comes? It is a possibility that members of Congress could delay the filing requirements by one year, which that bill is out there. It’s already passed the House. It needs to pass the Senate.

It’s all the Republicans are on board to pass that bill. We need to get some Democrats on board to pass that bill. And it’s possible. Don’t hold your breath. Be prepared to comply by January 1st. However, it’s possible. And if you reach out, if you go onto that website and reach out to your member of Congress and reach out to your senator, it’ll automatically send a message to your senator saying, this is important to us. Please delay, please delay, please delay.

That could be helpful. CAI is working, and now with CACM, working with a coalition of more than 130 associations in the Washington, DC area trying to delay the Corporate Transparency Act from the Manufacturers Association, National Federation of Independent Businesses, National Association of Home Builders, National Association of Realtors, 130 associations with millions of members.

We are all trying to work together to get this delayed. It’s possible something could happen before the end of the year, I’m not sure. Now we have a Trump administration. We definitely have a Republican Senate. We have likely a Republican House. So, we likely have, I’ve seen a lot of videos out there. I’ve seen a lot of images out there. We have a red wave, a red tidal wave.

That is something that could impact the future of the Corporate Transparency Act. It is in the realm of possibility that in 2025, the Corporate Transparency Act could be repealed by members of Congress. So, the House and Senate would have to pass legislation. The House can do it. I don’t see a problem with that. The Senate would have to have 60 votes on the Senate side.

So, they’d have to inch into some of those Democrats to vote for the repeal. And then of course, the Trump administration would pass, would support a repeal of the Corporate Transparency Act. Listen, after what happened earlier this week, we are not sure what’s going to happen with the Corporate Transparency Act. Nonetheless, community associations should be willing and ready to comply by January 1st.

TOM:  Well, I was just going to say, I mean, putting aside the politics and any of our listeners who follow anything relating to our industry and legislation understands that politics plays into pretty much everything in our industry. That’s, mean, both of our organizations either support or oppose legislation specific to our industry or we drive potential legislation for our industry.

So, it’s important to appreciate the involvement of politics, putting aside political party specifics, as you just said, this could go in a number of different directions. Personally, I would assume, and you know what that does, but I would assume that it will probably be extended before it gets repealed.

Now, understanding transition of leadership, the Biden administration is going to have to share decision-making with the Trump administration. And the Trump administration will have input on those decisions because the Trump administration will be the ones carrying that decision forward. because of that, I would anticipate the extension, if in reality this comes down to it, I would expect the extension would be first. And then sometime after Trump is actually in office, If it gets repealed, that would probably be the timeline to have it repealed.

But as you just said, it is highly important to everyone that is listening. It is highly important that you comply with these laws now. The problem that I see from a-

DAWN:  I would like to correct that a little bit. Be prepared to comply by the deadline. So, if you comply right now, that’s one thing. Be prepared. Have everything in order so that you can comply by the deadline. The problem is once all that information’s in the database, the information’s in the database.

I’m not saying wait till the last minute, because listen, your business partners are going on vacation. Don’t put it on them the last week of December to do, but be prepared, have your ducks in a row be prepared to comply.

TOM: So, for the self-managed associations out in the world listening to this, I would assume associations that have management involved, their management companies will spearhead some of this either through legal counsel or it’s almost a growing industry all of a sudden. So, there’s a lot of people deciding this is a great entrepreneurial opportunity to make these filings for people. So, I’m assuming, but there is a process.

Is that in your recommendation for the other associations that are not managed or self-managed, for lack of better way of putting it, they should speak to and work through their legal counsel to be able to make sure that they are prepared to go ahead and file this. And you make a very good point. Why do it now if you- as long as you’re, as long as you have all the ducks in a row between Christmas and New Year’s, you should be fine.

DAWN: So I would say if I were a self-managed association, I would go on our website and I’d look at the guidance documents. I would also check in with professionals, whether it’s a management professional, a legal professional, or a professional that is doing filings for the Corporate Transparency Act, because all of those exist. All of those resources exist. On a Google search, you can find them. You can find that support.

There’s a lot of information on the Department of Treasury’s webpage. Some of it can be little bit confusing and a little bit over, you know, a little redundant and confusing, but there are experts out there that are willing to help. And I know, you know, with CACM, you can go to members at CACM. You can go to some of the chat rooms. You can go to some of the chat rooms on our website. You will find people who are going to be able to help you.

TOM: So, Is this an annual, and I’ve neglected to ask this, is this an annual filing or once you file, how does that work?

DAWN: That’s interesting part, Tom, is if you think about a traditional small business, lots of Americans have, lots of people have small businesses. So, if you file up your small business, you’re filing the information about the beneficial owner information.

So, let’s say I have a small business, I own a coffee shop. I’m going to file that information. And if that information changes, I have to update it. But if it never changes, I never have to update it. Now, community associations are different, right? So that’s one of the compelling arguments that we’re making. So, every time there’s a change, there needs to be a filing.

Tom, if you’re serving on the board for six years, and your information doesn’t change, you don’t have to refile. But the new board members have to refile. And that’s where the filing changes. But it’s not an annual filing otherwise. It’s not like an annual corporate filing. It’s just you file once, you get the information. And then just update. Once information changes, you have to update the information.

TOM: So, for the managers and management companies out there, should this move forward, you’re going to need to have, you your record keeping needs to be spot on. So, every time your board turns over or any board member turns over, you’re going to need to update this form. And just as a side note, I’d make sure you build that into your management fees as a side note. So, as you well know, you deal with board members and boards of directors across the country.

You’re very familiar with board apathy. Let’s go down the negative side here. Not that any of this has been super positive, but let’s go down the super negative side. I have to, as a board member, file this application or this paperwork, provide copies of my passport, provide my social security number, copies potentially of my license instead of my passport and so on. This is very invasive personal information that I personally don’t want out in the open-source world.

Is the general thought that this might cause current board members to resign and then the secondary side of it is cause further apathy, which is already a problem in our industry.

DAWN: Yeah. yeah, that’s a great question. And the answer is yes. So we’ve done some surveying asking our members whether this has impacted their willingness and interest in continuing to serve in the board. And we’ve seen up to 80 % of the board members say that they are now questioning whether they want to continue to serve in the board because of providing the information, but then also the exposure to the penalties associated with making a mistake and filing that information. So that is definitely something that we’re seeing and that we are concerned about.

So, our lawsuit that we filed and the appeal, the notice of appeal is directly related to what CAI has identified is irreparable harm on community associations for these requirements. So, if board members decide they don’t want to serve on these boards, then of course, the communities can’t continue to govern the way they’re supposed to govern.

And then what’s the next step? Like, let’s just keep walking this down. The next step is the possibility of diminishing property values and diminishing values of those homes and units in those community associations, which creates irreparable harm, not just to the board members, but to all of the homeowners, you know, the 75 million homeowners in the U.S. living in community associations.

So that’s why we filed that notice of appeal. And that’s one of our arguments and statements in our lawsuit against the federal government is this is going to create irreparable harm in these community associations. I do think that the Department of Treasury is compelled by that argument. The judge was not compelled by that argument, which is baffling to me. It really is baffling to me because, you know, I mean, I have a tremendous amount of respect for the judge in his position, of course.

I just was very shocked at the lack of his understanding of the potential harm to community associations because listen, I’m not an alarmist, I’m not a hyperbolist, and this is of concern to CAI, to me, and to the board members that govern these community associations. So, I hope that’s why we are fighting so hard. And I appreciate your partnership in this, in fighting so hard to try to exempt community associations from this requirement. We will not stop, and we continue to either, whether it’s an act of Congress, which we continue to pursue, the lawsuit or the exemption with Treasury, we will not stop until, you know, until we just-

We’ll just keep going to the brick wall and as long as we have to until we can get some relief.

TOM: Yeah. I’ve been, I’ve been in front of more judges than I care to remember. And I’ve never, it’s never ceased to amaze me in some of their rulings, especially when, you know, I have very clear language and CCNR is stating exactly the position that I’m taking and then have it go the opposite direction. It’s kind of like, did you- Did you actually read what I gave you? I mean, it’s like, it’s like, really right there. I promise.

DAWN: So, it’s super, super good. I mean, we get why we understand why they don’t understand the law. I mean, we get it.

TOM: So, so what can I or CACM our members in California and more importantly, for the listeners across the country here, what can we do to a support CAI through or partner with CAI through your appeals process or what can we do just in general to help support the changing of this act or repealing of the act or extension of the act?

DAWN: Well, thank you. Thanks for that question and thanks for this partnership because as we work together on these really important issues for our members, for both of our members, this partnership is critically important, so I really appreciate that. So, three things I would say.

Number one, contact your member of Congress and let them know that this is important and that you believe community associations should be exempt. And it’s because there are a lot of issues for community associations complying with this. And you can find, you can go onto our website to find that call to action.

The second thing is to be informed, stay informed about what’s happening with all of the efforts in this area. So, watch the CACM website, watch our website, we’ll continue to keep you informed.

And three is be prepared to comply because really you want to make sure at the end of the day that your community association is covered, that you’re not doing anything in violation of this act. Listen, I know it’s a big deal- You said it at the beginning, you said it perfectly. It’s a big deal, but it’s not a big deal. It’s not a big effort, but it’s a lot of information.

But you know what? Just do what you can to protect your communities and stay involved in your communities. Don’t resign. Stay involved. We need you. We’ll get through this and we’ll continue to continue to fight for you. But we need you to stay with your communities and stay governing your communities. And I promise you between this partnership and CAI and CACM we will continue to fight for you.

TOM: Well, I’ve known you for a long time, Dawn. I know you’re one of the people that believe in what I believe. And for those listeners who know me, will know that I’m a firm believer in engagement. And without engagement, both in your community and in your industry, know, the balls are going to get dropped and you can’t then take a step back and, well, what about this? What about that? Well, you’ve had an opportunity to step in and take advantage of something or make your opinion heard.

So, to all of our listeners, please stay engaged or be engaged one or the other. Dawn, is there a question that I should have asked and didn’t?

DAWN: My favorite color is orange.

TOM: Really? Not blue? What’s about blue?

DAWN: Orange. It’s so happy. My desert island food is Caesar shrimp salad.

TOM: Now what’s your favorite cocktail? My favorite cocktail is just a nice cold glass of white wine.

TOM: Right on. I like vodka and red wine. So, there we go. We could have a party.

Hey, listen, Dawn, thank you so much for joining us. I think your knowledge and your input, not only in the industry, but very specific to this legislation, this CTA Act is invaluable to our members. So, I really want to thank you very much for your partnership and joining us today. Any parting words?

DAWN: Go Dodgers.

TOM: Go Dodgers. Wow. that’s a coast-to-coast thing, Go Dodgers. See, for the series, I couldn’t lose. I’m from New York.

DAWN: There you go.

TOM: I could not lose this series. Dodgers win, Yankees win. Either way, I’m a winner.

DAWN: Yeah, I was psyched for the Dodgers. Yeah, it’s a pleasure to be here. Thank you so much for the opportunity. I really enjoyed it.

TOM: It is my pleasure and I hope our listeners are going to take some serious value out of everything that you’ve shared for our listeners. If you have input questions, you want to share a story or an experience. If you’re if you have something specific to the CTA Act that that you’ve already experienced, please email us at podcast@cacm.org. We’d love to hear from you until the next time. I appreciate you listening. Thanks so much.

OUTRO: And that concludes this week’s episode of CACM Chat HOA Life. Have questions you want answered? Send them to podcast@cacm.org and we’ll address them in an upcoming episode. Make sure to regularly check out our website at cacm.org. And don’t forget to join our rapidly expanding social media community. Just follow @CACMchat on LinkedIn, Facebook, Instagram, and X. Thanks for joining me.