Ever since the federal legislature passed the Corporate Transparency Act (CTA), it has been a source of ongoing legal controversy. The CTA requires the disclosure of beneficial ownership information (BOI) details.
Businesses with opaque structures such as corporations and limited liability companies (LLCs) must submit a report to the Financial Crimes Enforcement Network (FinCEN) identifying any investor who holds at least a 25% ownership interest in the company. The reporting requirements also extend to those who registered the company with the state or directed that process. The goal behind the CTA is to limit opportunities for money laundering and prevent legitimate-looking businesses from funding terrorism.
Legal controversy surrounding the CTA has resulted in multiple lawsuits in different jurisdictions across the country and numerous rulings. Homeowners associations, condominium associations and housing co-ops are among the various businesses that could be subject to the CTA. What do these organizations need to know about the current status of the CTA?
Enforcement is set to begin shortly
Initially, enforcement of the CTA should have begun on January 1st, 2025. However, repeated litigation and rulings in favor of the plaintiffs pursuing relief from the courts resulted in a delay in the implementation of the CTA. After multiple lawsuits brought by individual businesses and associations representing businesses, including a lawsuit here in Michigan, the Treasury Department has announced a slight change in policy.
In theory, the CTA goes into effect on March 21, 2025. Despite a Treasury Department press release indicating there is no intent, at this time, to pursue enforcement against domestic organizations and investors, that policy could change with little warning. Additionally, this policy could face legal challenges, as the Supreme Court has ruled previously that federal organizations cannot ignore acts of law passed by the federal legislature.
For the time being, only foreign businesses are subject to enforcement if they fail to report BOI as required under the CTA. That being said, the possibility of that changing after a transition in leadership might make proactive compliance worthwhile. Housing-related organizations may want to file the necessary BOI report with FinCEN to avoid a scenario in which they might face multiple months or even years of compliance-related costs when policies change.
The CTA is one of many laws that could potentially affect the financial solvency of housing organizations. Partnering with professionals who actively monitor changing federal and state regulations, and any lawsuits that could apply to those regulations, can help housing cooperatives and similar entities to better ensure their ongoing legal compliance.