20 Mar 2024 - The Corporate Transparency Act (CTA) went into effect January 1, 2024. This law requires that certain business, including small business, to file information with the federal government - U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

The law’s purpose is to increase business transparency to prevent illegal activities like fraud, money laundering and tax evasion.

Who Does This apply to?

The CTA applies to all businesses that are registered with the state unless there is an exemption. Currently there are 23 types of entities that exempt from filing. One of those exemptions are for “tax exempt entities”. There is discussion by CPA’s as to whether an Association is “Tax exempt” if they file an 1120-H.

What has to be provided?

The association has to make an initial filing including the following information

• Name
• Address
• Phone Number
• Tax ID Number
• Other contact information for the association.

It is also necessary for providing additional information about the President, and most likely every Board member of the association.

Information required:

• Name
• Address
• Date of Birth
• Identifying documents (drivers license or passport)

The association must file a change of information within 30 days of any changes to the original information occurs. This means that within 30 days of any change in the board, the association will need to file a revised filing with FinCen.

When does this have to be done?

The Corporate Transparency Act takes effect on January 1, 2024, however, the deadline to submit any necessary documents is January 1, 2025. Any changes in the association will also require a revision with 30 days.

What if we do not file?

Assuming that the law does not change, the Association can be fined up to $500.00 per day if information is not properly filed. There is also a risk of criminal penalties and senior officers of entities that fail to file could be held accountable for not filing.

What should the Associations do right now?

Associations should wait and be patient. Currently there is not enough guidance on whether the 1120-H exemption makes the association not have to file. If you file now and the Board composition changes over this year, you will have to file a revised report.

CAI is actively trying to have an additional exemption added to the list that would make it inapplicable to associations.

What are the attorneys doing?

It looks like the attorneys may be the ones filing this on behalf of clients, similar to annual reports.

Right now the biggest concern is how to protect the personal information of clients. Cervantes Chatt & Prince’s portal allows clients to upload a copy of their drivers license or passport in an encrypted format.

Contributed by Cervantes Chatt & Prince PC