Co-ops Face Critical Deadline for Compliance with Corporate Transparency Act

The clock is ticking for board directors as they face a critical Jan. 1, 2025, deadline to comply with the Corporate Transparency Act (CTA). Enacted in 2021, the CTA requires specific U.S. businesses to file beneficial ownership information with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) as part of an effort to prevent potential terrorist activities.

While the law was broadly written to capture business ownership information, co-ops found themselves caught in its scope due to their corporate control structure (most condominiums are not corporations, so the CTA wouldn’t apply, but condo boards should verify with their attorneys). However, some question whether the CTA should apply to co-ops at all. The Community Associations Institute (CAI) has filed a lawsuit challenging the act’s applicability to community associations nationwide. Despite its efforts to secure a preliminary injunction to extend the filing deadline, the motion was denied, leaving the January deadline firmly in place.

The stakes for noncompliance are high. Boards that intentionally fail to file face civil penalties of up to $591 per day or criminal penalties including up to two years imprisonment and fines up to $10,000. Geoffrey Mazel, founding partner at the law firm Hankin & Mazel, notes that while board members may be hesitant to share private information with a new federal database, “you already file taxes. They know everything.” The consensus among industry professionals is clear: Compliance is essential to avoid significant penalties.

One particular challenge for co-ops is their annual rotation of board members. The CTA requires updates within 30 days whenever beneficial ownership information changes or new owners are added. A Treasury Department official has clarified that while previous board members’ information will remain in the database, FinCEN will maintain a clear reporting history for each company, organizing both current and previous owners’ information chronologically.

FILING RESPONSIBILITY 

Many boards are wondering who should do the filing. There are private companies that have cropped up to handle the task, and some management companies are outsourcing to them. Argo Real Estate, for instance, has assigned it to their in-house compliance team and engaged a third-party legal firm, charging buildings between $250 and $500 for their services.

FirstService Residential is working nationally with a private entity called FinCEN Report to collect and verify information from beneficial owners. “This is something that FirstService is doing nationally, because this is not just a New York issue,” says Ben Kirschenbaum, vice president and general counsel at FirstService. “It affects homeowners associations, co-ops and (some) condos across the country.” If a building opts in, FirstService will give FinCEN Report the names and contact information for all the beneficial owners required to report; the company will then reach out to the owners, collect and verify the necessary information, and file the report through the online portal. 

But whether everything will continue to move forward smoothly remains to be seen. “We’re still in the process,” says Kirschenbaum, who says that FirstService asked its clients to let them know by mid-October 2024 if they would be filing on their own or through the management company. “There are always some stragglers who are asking questions,” he says. “We gave them some recommendations as to what needs to be done, but some of them are talking to their attorneys. We’re just still at the very beginning, so I haven’t really got a lot of feedback as to whether it’s working well.”

Meanwhile, CAI continues its efforts on multiple fronts to exempt community associations from these requirements. “We are not only continuing those efforts with the lawsuit, but we also have efforts on the advocacy front,” says Dawn Bauman, chief strategy officer at CAI. “There is a bill in Congress that would exempt community associations from the Corporate Transparency Act. We’ve made an official request with the Department of the Treasury requesting an exemption of community associations that they are considering. And there’s a specific process in place for that exemption request that we’ve been pursuing since last December. Our endgame, our goal, is to have community associations recognized as exempt from this requirement.” 

As Kirschenbaum of FirstService Residential observes, the process is still in its early stages, with some boards consulting their attorneys and others still catching up with requirements. Whether the implementation will continue smoothly remains to be seen, but for now, the message is clear: Unless explicitly exempted, co-ops must prepare to file their beneficial ownership information by the January deadline.