KMK Law Corporate & Securities Blog

On April 18, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued additional FAQs relating to the Corporate Transparency Act (the “CTA”). More specifically, FinCEN provided helpful guidance pertaining to the reporting requirements of homeowners associations (“HOAs”) and reporting companies that have ownership interest held in trusts.

HOAs  

FinCEN clarified whether or not HOAs are reporting companies under the CTA. If an HOA was not formed by filing documentation with the secretary of state or similar office, then it is not a reporting company. If the HOA was created by a filing with the secretary of state or similar office, then it may be a reporting company if it does not qualify for an exemption. A common exemption for HOAs is the tax-exempt entity exemption, and HOAs designated as a 501(c)(4) social welfare organization may qualify for that exemption.

FinCEN further clarified that HOAs meeting CTA reporting requirements must report its beneficial owners. Even though there may be instances in which no individual controls at least 25 percent of the ownership interest of an HOA, FinCEN expects there to be at least one persons who exercises substantial control over the HOA, such as:

• senior officers;
• individuals having authority to appoint/remove certain officers or a majority of directors of the HOA;
• important decision makers; or
• individuals having others forms of substantial control.

Trusts

Additionally, FinCEN provided guidance on who the beneficial owners of a reporting company are when individuals control the company through a trust arrangement. Grantors, trustees, and beneficiaries may be beneficial owners of reporting companies by owning or controlling at least 25 percent of the ownership interests in the company through the trust. FinCEN provided the following non-exhaustive list that indicates trust parties own or control a reporting company:

• a trustee (or any other individual) has the authority to dispose of trust assets;
• a beneficiary is the sole permissible recipient of income and principal from the trust, or has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
• a grantor or settlor has the right to revoke the trust or otherwise withdraw the assets of the trust.

If a reporting company’s interests are controlled through a trust having a corporate trustee (an entity rather than an individual), then the reporting company must determine if the corporate trustee’s individual beneficial owners indirectly control at least 25 percent of the reporting company. If the corporate trustee’s owners are considered beneficial owners of the reporting company, then the reporting company may only be required to report the name of the corporate trustee (and not the individual’s information) if the following conditions are met:

• the corporate trustee is exempt from the CTA reporting requirements;
• the individual beneficial owners ownership of the reporting company is only by virtue of ownership of the corporate trustee; and
• the individual does not exercise substantial control over the reporting company.

KMK is continuing to monitor guidance issued on the CTA and will provide updates as necessary. Please reach to KMK’s CTA Team with any questions or concerns.