Background: The Corporate Transparency Act (“CTA”) was enacted by Congress on January 1, 2021, for the purpose of preventing money laundering, tax fraud, and other similar activities. The CTA requires covered entities to disclose information regarding their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). To date, it has not been clear whether condominiums, homeowners’ associations, and other community associations were intended to be covered by the CTA and, thus, required to satisfy its reporting requirements. Since the passage of the CTA, the Treasury Department has offered no further clarification.

As the date for compliance approaches, MBM will provide a tool on its website pursuant to which condominium associations can plug-in the required information, and it will be transmitted to FinCEN.

The CTA states, in relevant part, that a “reporting company” is an entity “created by the filing of a document with a secretary of state or a similar office under the law of a State … .” Massachusetts condominiums can take the form of a corporation, an unincorporated association, or a trust. As drafted, the CTA clearly requires any community association incorporated at the Secretary of the Commonwealth’s office to file the required reports. A condominium that uses the form of a trust as its organization of unit owners is created by the recording of a declaration of trust with a registry of deeds. The instrument creating an unincorporated association may or may not be recorded at the registry. With regard to a trust, or an unincorporated association whose by-laws are recorded, the question arises as to whether a registry of deeds constitutes a “similar office” to the Secretary of the Commonwealth so as to render condominium associations reporting companies in such circumstances. In our opinion, where the instruments creating an organization of unit owners as an unincorporated association are not recorded, such association is not subject to the requirements of the CTA.

While it is MBM’s position that, as to condominium associations that are formed by recording a declaration of trust with the registry of deeds, no reporting should be required, MBM has advised that, in the absence of greater clarity, it is most prudent for these entities to report.

New Legal Challenges: MBM is happy to share that at least two legal challenges are underway, which seek court orders declaring that community associations are not considered “reporting companies” pursuant to the CTA.

First, the Board of Trustees of Community Associations Institute (“CAI”) has approved filing a lawsuit to exempt and protect community associations. The suit is against the U.S. Department of Treasury. Simultaneous with its suit, CAI is pursuing efforts to engage congressional representatives to urge FinCEN to exempt community associations from reporting requirements.

Second, closer to home, the Lewis Wharf Condominium Trust, located in Boston, has instituted an action in the U.S. District Court, District of Massachusetts, against Janet Yellen, in her official capacity as the Secretary of the United States Department of the Treasury. Lewis Wharf’s suit seeks declarations that condominiums created by master deed recorded with the registry of deeds, even if said registry is “supervised” by the Secretary of the Commonwealth, are not subject to the CTA reporting criteria.

MBM will continue to keep our clients, and the industry apprised of any developments. As the date for compliance approaches, MBM will provide a tool on its website pursuant to which condominium associations can plug-in the required information, and it will be transmitted to FinCEN. We will keep our newsletter subscribers apprised of this update.

Please continue reading below to find answers to frequently asked questions concerning the CTA.

General Questions

1. Who is and who is not a Beneficial Owner?

A Beneficial Owner is an individual who owns or exerts substantial control over an association. Board members, unit owners that own more than 25% of the ownership interest, and, in exceptional circumstances, property managers (depending on the management contract) may be considered beneficial owners. Beneficial Owners must be individuals.

2. What is Beneficial Ownership Information?

Beneficial ownership information refers to identifying information about beneficial owners.

3. What information about the Beneficial Owners must be reported?

• Name
• Date of birth
• Current residential address
• A copy of a government-issued I.D. (driver’s license, passport, state-issued I.D.)

4. Are all associations required to file with FinCEN?

This remains an open question. In MBM’s opinion, they do not, though if it remains an open question when the time for reporting arrives, it is our recommendation that associations should take the most conservative approach and provide the requisite information to FinCEN. Associations can take different corporate forms. As with any entity, if an association was not created by the filing of a document with the Secretary of the Commonwealth or similar office, then it is not a domestic reporting company. An incorporated association or other association that was created by such a filing also may qualify for an exemption from the reporting requirements. For example, associations designated as 501(c)(4) social welfare organizations may qualify for the tax-exempt entity exemption. An incorporated association that is not designated as a 501(c)(4) organization, however, may fall within the reporting company definition, and therefore, be required to report beneficial ownership information to FinCEN.

5. When should an association complete its first Beneficial Ownership Information Report?

According to guidance from FinCEN, associations created before January 1, 2024, have until January 1, 2025, to complete its first report. Associations created after January 1, 2024, have ninety (90) days following their creation or registration.

6. Is there a fee for submitting the Beneficial Ownership Information to FinCEN?

No, there is no fee for submitting this information to FinCEN. Likewise, MBM will not be charging a fee for use of its website portal. More information will be provided to our clients concerning the use of MBM’s website to submit information to FinCEN.

7. When do changes to the Beneficial Ownership Information have to be reported to FinCEN?

Updates due to changes in Beneficial Ownership Information must be reported to FinCEN within 30 days after the change occurs. Updates include any change to the information reported for the reporting company, any change in Beneficial Owners, or the information reported for a Beneficial Owner.

8. How often does an association have to report the Beneficial Ownership Information?

An Association must only file the initial report. There is no annual reporting required. However, an updated report must be submitted if information has changed, or information was reported incorrectly.

9. What information about the association needs to be reported?

• The legal name of the association
• Any alternative names (DBA) used by the association
• The current street address or principal place of business (address can be an office or unit on association property)
• Taxpayer identification number (EIN/SSN/ITIN)

10. What happens if an association does not file its Beneficial Ownership Information Report?

An association that willfully fails or refuses to report the Beneficial Ownership Information to FinCEN may face civil penalties of up to $500 for each day that the violation continues, and criminal penalties of up to two (2) years imprisonment and a fine of up to $10,000. The same penalty will be exacted upon an association that willfully fails or refuses to update the Beneficial Ownership Information when changes have occurred.

11. How are Beneficial Ownership Information Reports submitted to FinCEN?

Reporting associations will submit reports electronically through FinCEN’s Beneficial Ownership Secure System (BOSS). As indicated here, MBM will also provide a tool on its website pursuant to which condominium associations can plug-in the required information, and it will be transmitted to FinCEN.

12. Can an association deny individuals from serving on the board if they refuse to provide their Beneficial Ownership Information?

While there is not much guidance given by FinCEN on this matter, MBM’s position is that an individual cannot, and should not, be prohibited from running for a Board member position. However, it should be made clear during the election process that board candidates and members become Beneficial Owners of the association when elected and are legally required to provide such information.