Who's a "beneficial owner" for new FinCEN required form?

Started by KentS2 • 25 replies • 1421 views

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KentS2 (Massachusetts)
Posts: 8

Posted:

As you may know - and should know - starting this year, the federal government is requiring HOAs, among many other types of organizations, to file a Beneficial Ownership Information (BOI) report as part of a campaign against money laundering and the like. There are pretty substantial penalties if you don't file the form by the end of the year. (Brief overview here: https://www.fincen.gov/sites/default/files/shared/BOI%20Informational%20Brochure%20508C.pdf. You can also do a web search for BOI + HOAs.)

Various information must be filed about all the "beneficial owners" of an organization, which, according to the instructions, is defined as anyone who either owns 25% of the company or exercises "substantial control" over it - viz., a senior officer or important decision maker.

I live in an 11-unit owner-occupied condo association in which three of us serve as volunteer trustees (not "board of directors"), elected on a staggered basis to 3-year terms. I'm currently the one who deals with bookkeeping tasks. My question is whether all three of us qualify as beneficial owners and need to submit our personal info -- as opposed to, I guess, just me ... or no one ... or all 11 of us.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Read the IRS guidelines on it. They usually have the definition for their forms. Although never heard of the one you referenced.

Former HOA President

CathyA3 (Ohio)
Posts: 6,299

Posted:

This isn't an IRS tax form. It's the form required by the Corporate Transparency Act that takes effect this year. We've had discussions about this, one of them ongoing right now.

The issue for HOAs is that it isn't totally clear who exactly is a beneficial owner. Definitely the board. Maybe officers depending on their responsibilities. The problem is that the CTA also defines beneficial owner as someone with the authority to remove board members. And that's the membership! Not individually, but in aggregate. And given how low some quorum requirements are, you can have a small minority of members actually making this decision. What about the community manager? Usually I'd say no, but occasionally boards may delegate certain tasks and even decisions to the CM. Is the CM now a "beneficial owner"? A corporate investor who owns multiple condo units can also fit the definition.

The CTA almost certainly wasn't meant to cover community associations, but the wording of the language does describe the individuals I just mentioned. It's why some of us are lobbying our Congresspersons to exempt community associations or at least clarify the language in the bill.

Lawyers generally say that community associations should file the information rather than risk the penalties for failing to file (can include fines and prison sentences).

Should Homeowners Associations Pay Attention to the Corporate Transparency Act? YES!

Quote:

"Who is a Beneficial Owner?

The CTA defines a “beneficial owner” as an individual who maintains substantial control over the company, or who possesses a significant ownership interest in it. Specifically, this encompasses any person who, directly or indirectly, wields substantial control—such as those serving in senior management positions, like managing members, presidents, or CEOs—or holds at least a 25% share of the reporting company’s ownership interests."

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By KentS2 on 02/09/2024 5:14 AM
... snip ...

I live in an 11-unit owner-occupied condo association in which three of us serve as volunteer trustees (not "board of directors"), elected on a staggered basis to 3-year terms. I'm currently the one who deals with bookkeeping tasks. My question is whether all three of us qualify as beneficial owners and need to submit our personal info -- as opposed to, I guess, just me ... or no one ... or all 11 of us.

I'm not a lawyer and this is new to all of us, so take this with a grain of salt... but it sounds like the three trustees qualify. If any one individual owns 3 or more units, they also qualify.

(This is a perfect example of why the language in the CTA needs to be clarified.)

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Sorry was reading off my phone. A Google search revealed most of the answers. However there was references to accept those HOAs that are 501 c 3 tax exempt organization.

Former HOA President

LoriM15 (Florida)
Posts: 1,009

Posted:

I went to a webinar recently where CTA and filing was discussed. The advice from the attorneys was to be prepared to file, but hold off until the last minute because they expect that there will be changes and HOAs will be exempt. It was clearly a mistake to include HOAs in this legislation.

TimB4 (Tennessee)
Posts: 21,047

Posted:

In my opinion, the "beneficial owners" would be the Board of Directors, perhaps the Officers (if they are separate individuals from the Directors).

KentS2 (Massachusetts)
Posts: 8

Posted:

Thanks for all these replies.

@LoriM15 - This is very interesting. I wonder if anyone else has heard that there's a realistic chance of the requirement's being changed before the end of the year, which presumably means it can be modified without Congressional action.

CathyA3 (Ohio)
Posts: 6,299

Posted:

There's really no benefit to filing early in the year. In addition, board members and officers come and go, and most associations have yet to hold their annual election. So waiting until December makes sense for that reason alone.

There is definitely a lobbying effort going on for the Powers That Be to at least clarify the language so that we're not all in limbo. On the other hand, 2024 will be crazy because of the election, so I'm not holding my breath that anything will happen soon.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

already did our HOA's took 15 minutes, don't see what the big deal is, super easy to do online and you are basically just uploaing your drivers license and HOA contact info.

just cover your A*** and get 3 drivers license and have one person upload it.
you really think the government is organized enough to check and see if the HOA leadership changes after every election, when people in your own neighborhood can barely keep track?

vis ta vie

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By CathyA3 on 02/09/2024 6:43 AM
This isn't an IRS tax form. It's the form required by the Corporate Transparency Act that takes effect this year. We've had discussions about this, one of them ongoing right now.

The issue for HOAs is that it isn't totally clear who exactly is a beneficial owner. Definitely the board. Maybe officers depending on their responsibilities. The problem is that the CTA also defines beneficial owner as someone with the authority to remove board members. And that's the membership! Not individually, but in aggregate. And given how low some quorum requirements are, you can have a small minority of members actually making this decision. What about the community manager? Usually I'd say no, but occasionally boards may delegate certain tasks and even decisions to the CM. Is the CM now a "beneficial owner"? A corporate investor who owns multiple condo units can also fit the definition.

The CTA almost certainly wasn't meant to cover community associations, but the wording of the language does describe the individuals I just mentioned. It's why some of us are lobbying our Congresspersons to exempt community associations or at least clarify the language in the bill.

Lawyers generally say that community associations should file the information rather than risk the penalties for failing to file (can include fines and prison sentences).

Should Homeowners Associations Pay Attention to the Corporate Transparency Act? YES!

Quote:

"Who is a Beneficial Owner?

The CTA defines a “beneficial owner” as an individual who maintains substantial control over the company, or who possesses a significant ownership interest in it. Specifically, this encompasses any person who, directly or indirectly, wields substantial control—such as those serving in senior management positions, like managing members, presidents, or CEOs—or holds at least a 25% share of the reporting company’s ownership interests."

The largest HOA law firm in Ohio is advising NOT to file this form at this time. The expectation is the law will be revised in 2024 to exclude HOAs.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By WendyM5 on 02/10/2024 4:23 AM
already did our HOA's took 15 minutes, don't see what the big deal is, super easy to do online and you are basically just uploaing your drivers license and HOA contact info.

just cover your A*** and get 3 drivers license and have one person upload it.
you really think the government is organized enough to check and see if the HOA leadership changes after every election, when people in your own neighborhood can barely keep track?

It's the "people in my neighborhood" I'm worried about. Governmental employees have at least a passing acquaintanceship with the concept of data security, while the average person is woefully ignorant of even the basics. I wouldn't trust my current board as far as I can throw them. They're not evil, but they are clueless in some areas - and are most confident when they are the most clueless, which is a bad combination.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Cathy,

In case you are not aware, clicking on the link you provided takes you right back to this thread.

Tim

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By TimB4 on 02/10/2024 6:06 AM
Cathy,

In case you are not aware, clicking on the link you provided takes you right back to this thread.

Tim

Thanks for the heads up. Here's the correct link:

Should Homeowners Pay Attention to the Corporate Transparency Act?

(My kingdom for an edit button and a preview button.)

WendyM5 (North Carolina)
Posts: 1,522

Posted:

Quote:

Posted By DeanJ on 02/10/2024 5:42 AM

The largest HOA law firm in Ohio is advising NOT to file this form at this time. The expectation is the law will be revised in 2024 to exclude HOAs.

The largest HOA law firm will also be advising HOA's pay them $200 to file this 15 min online document if and when the law remains unchanged.

vis ta vie

MicheR (Nevada)
Posts: 15

Posted:

Hello everyone,

I am a Board member who may be required to sign this document. Therefore, I am doing a bit of research so I am fully aware of what liability may be bestowed upon me. I feel that our board is complacent and have no idea of what or how our PM is managing our property. I have found a huge amount of errors in our financials (including missing funds that have not been reconciled or explained), which concerns me the most. While I have a fudiciary duty to attemp to correct these errors, I do not have the full support of our board. Therefore, "why" should I sign this? I am contemplating of resigning come this next election should our financials not get straightened out, simply because of this new form.

I completely understand why they included HOA's in this. While most boards do not pay attention to the backend accounting, I feel you are operating in the dark. Funds are laundered, embezzeled all the time through HOAs and I personally do not wish to be so naive to think it could never happen in our HOA. I do read the cases from our real estate division to get educated.

I recently came across a very good video explaining this new form. https://youtu.be/h4AeNwpV4n0?si=rgoe-l6kBwEsqOGh They talk about whether or not your PM has been given enough authority to act on the associations behalf. If so, a board may want to list the PM on this form as well. In our case, our board has given a lot of authority to PM and I feel they should sign it as well. My thought is, if a board is giving so much authority to the PM and they do not sign it, each individual BOD member is taking on the liability of the PM,

I could be wrong about this, but I definitely want to do more reserch before I sign it.

Interested to know your thoughts.

Regards,
Shelley

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MicheR on 02/17/2024 10:13 AM
I have found a huge amount of errors in our financials (including missing funds that have not been reconciled or explained), which concerns me the most. While I have a fudiciary duty to attemp to correct these errors, I do not have the full support of our board. Therefore, "why" should I sign this?

Because at present, federal statute requires HOA directors to provide certain information and may impose civil penalties if a director does not.

At present I believe a board has the lawful right (and even the obligation) to remove a director who refuses to provide the statutorily required information.

Quote:

Posted By MicheR on 02/17/2024 10:13 AM
They talk about whether or not your PM has been given enough authority to act on the associations behalf. If so, a board may want to list the PM on this form as well. In our case, our board has given a lot of authority to PM and I feel they should sign it as well.

I gave this a lot of thought, based on what the statute says and the purpose of the statute. I agree that under certain circumstances, indicates a PM should have to meet the requirements of the statute. I am confident many a PM will fight this tooth and nail. Which would make me suspicious of the PM right off the bat.

Quote:

Posted By MicheR on 02/17/2024 10:13 AM
My thought is, if a board is giving so much authority to the PM and they do not sign it, each individual BOD member is taking on the liability of the PM,

In my opinion, this new statute is not about liability.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Miche,

Elle gave good reasons.

From my perspective, unless (until) HOA/COAs are exempt from the document, your choice would be to sign or resign.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I believe including community associations in this was unintended.

I do not believe they are hotbeds of embezzlement or money laundering or terrorist support. Yes, it can happen. But with some exceptions (eg. that HOA in Florida that was being run by a criminal gang), financial mismanagement in HOAs is mostly garden variety incompetence or small fry dishonesty. The Corporate Transparency Act is going after the big guns that support terrorist networks or international criminal networks, and these big guns don't lurk in HOAs. Evidence? They would never tolerate the level of incompetence you can see among association board members and community managers.

MicheR (Nevada)
Posts: 15

Posted:

Hi Elle,

I agree that if board member refuses to sign this, they should either resign or be removed. If this is not about "liability" then I am happy to sign it. However, if there is any liability involved, I would like to know beforehand. This is what I am tring to decipher and need to review this further. I also agree that if a PM is given a significant amount of authority on behalf of the association, they too should sign it. If they refuse, it would make me suspicious as well.

all the best,
Shelley

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MicheR on 02/17/2024 12:20 PM
If this is not about "liability" then I am happy to sign it. However, if there is any liability involved, I would like to know beforehand.

I gather your point is that when a director submits identifying information pursuant to the new Corporate Transparency Act, you feel the director is admitting he/she 'exercises substantial control' over the company.

But the fact is that corporate statutes, HOA/COA statutes, the covenants and bylaws already say that a HOA/COA director exercises substantial control over the company.

If, like many folks, you are not comfortable with your understanding of these quite complicated laws, then I can understand how resigning from the board makes sense.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Keep in mind that the information they are asking for is already in government hands.
It's simply not brought together in one place and would require the federal government to get permission to obtain some of the info.

A corporations annual report to the State includes the name and address of the corporation
A corporations annual report to the State includes the name and address of each Director and Officer.
DMV has the drivers license number and date of birth of those serving (expecting everyone has a drivers license)
The IRS has the tax ID number for the corporation

MicheR (Nevada)
Posts: 15

Posted:

I do realize the authority our governing documents give to the BOD on behalf of the association, and I willfully accept that authority. However, I do feel we have protections from our own state statutes when it comes to PMCs. To be honest, I am not so concerned with our board members as I am with our PMC. I think we will need to review the amount of authority we have given to them. "If" we've given them a significant amount of authority on our behalf, it might warrant them to sign this form along with us. These are topics that I am sure our attorney could guide us with. On the flip side, perhaps we wouldn't want them to sign it.

I'm just stating some thoughts I have about this. I'm not saying it is a good or bad thing, I just want to understand it better before we sign and file it.

ElleN (Idaho)
Posts: 4,420

Posted:

This past Friday (March 1), a federal district court judge ruled the Corporate Transparency Act is Congressional overreach and is not constitutional. The expectation is that this will be appealed. Excerpts from media reports:

On March 1, 2024, U.S. District Court Judge Liles C. Burke issued a 53-page opinion[1] granting summary judgment for the National Small Business Association and held that the Corporate Transparency Act “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”

As a result, Judge Burke found the CTA to be unconstitutional because it exceeds the Constitution’s limits on Congress’ power, without even reaching a decision on whether it violates the First, Fourth, and Fifth Amendments. The Court then permanently enjoined the government from enforcing the CTA against the named plaintiffs and ordered a further hearing on the award of costs of litigation.
==

Specifically, [the judge] rejected Treasury’s argument that the CTA rests on Congress’ recognized authority to regulate interstate commerce, foreign affairs involving national security, and the administration of taxes.

“The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers,” the 53-page ruling concluded.
...
Experts had predicted a slim chance of success for NSBA’s lawsuit because established precedent gives Congress broad authority to regulate business under the Constitution’s commerce clause. But Burke ruled that merely filing incorporation papers to form a legal entity, a process administered at the state level, does not qualify as commerce.

“[T]he CTA does not regulate commerce on its face,” he wrote.

[The judge's] decision made it unnecessary to evaluate whether the CTA violated constitutional privacy protections as NSBA had argued, Burke concluded.

TimB4 (Tennessee)
Posts: 21,047

Posted:

Elle,

Thanks for keeping tabs on this and letting everyone know.

It's likely not over yet.

Interested in specifics:

FINAL JUDGMENT of the case

MEMORANDUM OPINION the opinion Elle posted about

National Small Business United v. Yellen (5:22-cv-01448) full case history and docs from Court Listener

Interested in news reports:

Breaking News: Federal Court Ruled Corporate Transparency Act Unconstitutional – Beneficial Ownership Information Reporting on Hold from an accounting firm.

Challenge to Corporate Transparency Act Prevails – For Now short notification on the ruling from a law firm.

Court CTA Ruling a Huge Win for Main Street from S-Corp. Gives a lot of background to the act.

U.S. District Court in Alabama Rules CTA Unconstitutional from International Enforcement Law Reporter

CathyA3 (Ohio)
Posts: 6,299

Posted:

Thanks to Elle and Tim for the updates. We live in interesting times. :-)

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