For our firm’s general overview on the Corporate Transparency Act (CTA), click HERE. We thought it would be helpful to supplement with this short list of Frequently Asked Questions (FAQs) regarding the CTA.
Corporate Transparency Act FAQs
1. Does my association need to file a CTA report?
Probably. MOST community associations will be required to file.
Whether or not an association must make a CTA filing depends on how the association was created. The CTA generally defines a “domestic reporting company” as any entity which was created by the filing of a document with a secretary of state or any similar office of a U.S. State.
Therefore, if your association was created by filing formation documents with the Arizona Corporation Commission (or a similar agency in another state), it will be required to comply with CTA filing, UNLESS it falls under the very limited exceptions of:
- having an active 501(c)(4) tax-exempt designation, or
- having annual gross receipts of more than $5 million AND more than 20 full-time employees.
2. Does my association need to file a CTA report every year?
No. There is no annual reporting requirement for CTA. However, after filing the initial report, entities ARE required to file corrected and/or updated reports as circumstances change in the future, for example, a change in board membership or management company.
The CTA requires entities to update their filings within 30 days of any such change. This ongoing reporting requirement is what makes the CTA so onerous for community associations, as they typically experience regular changes in board membership, etc.
3. Does the federal government charge a filing fee for the CTA report?
No. The government does not charge a fee for submitting the required CTA report to the Financial Crimes Enforcement Network (FinCEN).
4. What information is my association required to provide for the CTA report?
A. For The Association:
(i) Legal name (and trade name, if any – ex., d/b/a),
(ii) Street address,
(iii) Jurisdiction of formation, and
(iv) Tax ID number (EIN),
B. For All Board Members:
(i) Legal names,
(ii) Birthdates,
(iii) Home addresses,
(iv) Driver’s licenses, state IDs or passport numbers, and
(v) Images of the documents provided to comply with Item (iv) above.
C. The same information as in (B) above for:
(i) Other individuals with substantial control over the association (not entirely clear who this will be under the CTA, but likely the CEO of the management company); and
(ii) Any individual who owns 25% or more of the lots or units within the association.
5. Is there a penalty for failure to file a required CTA report?
Yes. A willful failure to file is subject to a civil penalty of up to $500 per day for each day of violation, and criminal penalties of up to 2 years in prison and a fine of up to $10,000.
6. Do the penalties apply to associations or individuals?
Potentially both. Associations AND individuals “can be held liable” for willfully failing to report complete beneficial ownership information. Individuals can be subject to penalties if they either cause the failure by refusing to provide required information or are a senior officer of the company at the time of the failure.
While we believe it’s possible for penalties to be applied to associations, we also believe it’s UNLIKELY as long as associations can demonstrate a reasonable effort to report all beneficial owner information timely and accurately. Since the penalties apply to willful conduct, we think it’s unlikely that an association would be penalized for an individual beneficial owner’s refusal to provide required information, if the association can demonstrate a good faith effort to obtain and report such information.
Finally, if a penalty were to be assessed against an association, it’s probable that the individual directors would be shielded from liability under indemnification provisions included in most associations’ governing documents, as well as Arizona law; EXCEPT for any director who willfully caused the association to file an incomplete report by withholding required information (in which case a penalty would likely be imposed on those directors on an individual basis, rather than through the association).
