Beginning on January 1, 2024, the once-dormant Corporate Transparency Act came to life (read our blog from earlier this year: Corporate Transparency Act Blog). The CTA was enacted by Congress following a series of scandals that highlighted how bad actors in foreign countries invested illicit funds in U.S. real estate and companies. Historically, the owners of corporations and LLC could be anonymous, making U.S. investments a vehicle to hide assets, at least according to Congress.
The CTA requires that people who own or control the interests of corporations or LLCs (the CTA refers to these people as “Beneficial Owners”) submit their full names, ages, current residential addresses, and a scan or photograph of a state- or government-issued identification to a government database overseen by the Financial Crimes Enforcement Network, a division of the U.S. Treasury.
Companies formed before 2024 have until January 1, 2025 to submit the information on behalf of their Beneficial Owners, whereas companies formed during 2024 or 2025 had 90 days or 30 days, respectively.
Most large companies, such as publicly traded companies, and many charities, are exempt from CTA requirements, because they are legally obligated to submit this information already.
A company’s failure to timely submit the required information, or a submittal of inaccurate information, carries draconian penalties. A company could be issued a daily fine of $500, or penalties of $10,000 per violation, and even criminal sanctions.
The burden of complying with the CTA fell mostly on small businesses, the “mom-and-pop” businesses of America, and inexplicably, on HOAs and condominium associations. Many small businesses do not regularly employ attorneys, nor would they have any reason to know that the CTA applied to their companies, much less the risky penalties that could be imposed. For HOAs and condominium associations, the result is higher assessments to members, and even more obligations for unpaid volunteer board members who could face possible criminal sanctions. To be clear, limiting illicit funds in the U.S. is a worthy cause, but the CTA is harmful and costly to our clients.
Late on December 3rd, less than a month before the January 1st, 2025 reporting deadline, a federal district court judge in the Eastern District of Texas issued a nationwide injunction against enforcement of the CTA. The grounds for the injunction are constitutional, and the judge reasoned that the government exceeded its constitutional authority when enacting the CTA.
For now, it appears that the CTA is on hold nationwide. It should be noted that the court’s decision is an injunction, to preserve the status quo, pending further hearing. Our corporate and limited liability company clients, and our HOA and condominium association clients, do not need to meet the January 1st, 2025 deadline, at least as of today. It is possible that the injunction gets overturned, in which case there might be a tight deadline to complete the CTA submissions. The most conservative advice is to complete the submission process now, because there is no guarantee of what happens next, or when.
As there will certainly be further developments, and a potential Supreme Court showdown, we will provide periodic updates.
Author: Benjamin Karb
Articles have been Reprinted with permission from the charlotte observer and Mike Hunter.
* These articles and related content on this website are provided without warranty of any kind and in no way constitute or provide legal advice. You are advised to contact an attorney specializing in Association Management for legal advice related to your specific issue and community. Some articles are provided by thrid parties and online services. Display of these articles does in no way endorse the products or services of Community Association Management by the author(s).
