The Corporate Transparency Act (CTA) was passed with the goal of combating illicit activities like money laundering and terrorism financing. Under the CTA, many entities—including community associations such as homeowners associations (HOAs), condominiums, and housing cooperatives—would be required to submit detailed reports on their “beneficial owners” to the federal government.
These reporting requirements, while aimed at increasing transparency, have raised significant concerns within the community association industry. Many believe these regulations unfairly target associations that have little to no connection to the types of activities the CTA is intended to prevent. To address this, the Community Associations Institute (CAI) has been advocating for an exemption from the CTA for over a year. However, after repeated efforts, the U.S. Department of the Treasury declined to provide any regulatory relief.
CAI Takes Legal Action
On September 10, 2024, CAI escalated its efforts by filing a lawsuit against the U.S. Department of the Treasury, Treasury Secretary Janet Yellen, and the Financial Crimes Enforcement Network (FinCEN). The lawsuit challenges the CTA’s application to community associations and seeks to protect HOA board members from unnecessary and burdensome regulations.
In the lawsuit, CAI argues that the reporting requirements under the CTA are not only overly broad but also potentially unconstitutional. The CTA forces volunteer board members to disclose sensitive personal information, which CAI argues is an overreach, given that community associations are unlikely to be involved in the illegal activities the CTA is designed to combat.
Along with the lawsuit, CAI is also filing a motion for a preliminary injunction. This would provide temporary relief from the CTA’s requirements while the court considers the merits of the case.
Conclusion
Similar lawsuits have been filed (see National Small Business United v. Yellen) resulting in favorable ruling for small businesses. The court held that the CTA’s requirements, as applied to these businesses, were unconstitutional
While the Corporate Transparency Act was designed with good intentions, its sweeping application to HOAs, condominiums, and housing cooperatives could have unintended consequences for volunteer board members and community governance.
