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Navigating The Corporate Transparency Act for Community Associations in Virginia

Navigating The Corporate Transparency Act for Community Associations in Virginia

The Corporate Transparency Act (CTA) ushers in significant changes for various organizations, including community associations in Virginia. Mandated as part of broader efforts to combat financial crimes such as money laundering, the act imposes stringent reporting requirements on certain entities. 

For community associations like HOAs and condominium associations, understanding and complying with the act has introduced a host of new challenges in recent years.

Here's a closer look at how the CTA and community associations in Virginia are impacted and key steps to ensure compliance.

What is the Corporate Transparency Act?

Enacted in 2021 under the National Defense Authorization Act, the Corporate Transparency Act requires "reporting companies" to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).

This reporting aims to increase corporate transparency and curb crimes such as terrorist financing and money laundering.

For community associations, compliance with the federal law's reporting requirements includes identifying all individuals who exercise "substantial control" over the entity or own 25% or more of its ownership interests.

Unfortunately, many community associations do not qualify for the law’s narrow nonprofit exemption, meaning they must adhere to these burdensome regulations.

CTA Compliance for Community Associations

Key Reporting Requirements

To comply with the Corporate Transparency Act, community associations must file a Beneficial Ownership Information (BOI) report with FinCEN. This report includes:

  • Legal names and addresses of the entity.

  • Names, birth dates, and personal identification details of all "beneficial owners."

  • Information on the individual(s) who filed the association's formation documents.

Failure to address key compliance steps, provide accurate information, or meet the compliance deadline can result in steep penalties, including fines of up to $10,000 or imprisonment.

Legal and Administrative Challenges

Many community associations—often volunteer-led organizations—are ill-equipped to handle the additional administrative workload imposed by the CTA.

Gathering sensitive data related to board members, ensuring compliance ahead of reporting deadlines, and updating information regularly are daunting tasks that may strain already limited resources. Maintaining volunteer engagement amid these new, complex requirements is yet another hurdle associations must manage effectively.

The Community Associations Institute (CAI) has actively opposed these measures, advocating for provisions to exempt community associations. However, as of now, the law remains applicable to the majority of associations.

Industry Response and Legal Developments

Though the Corporate Transparency Act was created to enhance transparency, community associations have pushed back against its inclusion due to the undue burdens it creates. The CAI, informed by community association research, has led advocacy efforts to gain exemptions, citing that many associations are nonprofits with no engagement in commercial activities.

Several legal challenges have also emerged. For instance, a Texas federal court issued a nationwide preliminary injunction in December 2024, temporarily pausing enforcement of the CTA. This decision was based on arguments under the Administrative Procedure Act.

However, rulings from other courts have reinforced the law’s reporting requirements, leaving affected organizations, including community associations, in a state of uncertainty.

Compliance Tips for Virginia Community Associations

While ongoing litigation may affect the CTA’s enforcement, community associations in Virginia should proactively prepare. Here are the steps you can take:

  1. Understand the Act's Applicability

Consult a community association attorney to determine your organization's status under the CTA regulations and whether you qualify for any exemptions.

  1. Organize Beneficial Ownership Data

Begin compiling and verifying information for those who qualify as "beneficial owners" under the act.

  1. Engage Experts

Collaboratively work with community association lawyers and use resources from organizations like the Community Associations Institute (CAI) to ensure proper compliance.

  1. Monitor Court Decisions

Stay informed of ongoing legal challenges that may impact CTA compliance deadlines and reporting obligations

Why Staying Compliant Matters

Noncompliance with the Corporate Transparency Act can lead to penalties and reputational damage. Equally concerning is the potential for a significant administrative burden that detracts from an association’s ability to serve its residents.

While you may feel daunted by the act’s requirements, thorough preparation can reduce the risks and ensure a smoother transition into compliance.

The Path Forward for Virginia Community Associations

The Corporate Transparency Act's reporting requirements may be challenging, but they are an important step in ensuring corporate transparency nationwide. Until further exemptions are granted or enforcement is halted entirely, Virginia community associations must brace for these new responsibilities.

By leveraging resources from advocacy groups like the Community Associations Institute, hiring skilled community association attorneys, and monitoring legal updates from federal courts, your organization can effectively meet these requirements.

For additional guidance, partner with EJF Real Estate. Our expertise will help you understand and comply with the CTA.

You can also head to our webinars page for more information on the Corporate Transparency Act.

Other Resources:

How to Avoid Conflicts of Interest as a Community Association Board Member

Community Association Manager: Leading Communities to Thrive and Flourish

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