Community associations need to continue to be vigilant and closely monitor legal developments regarding the Corporate Transparency Act. At least four U.S. district courts have taken up cases related to the constitutionality and application of the act. Two have sided with the plaintiffs, and two have sided with the federal government. Appeals have been filed in each of the cases. 

The Dec. 3 decision by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc., et al. v. Garland, et al., temporarily blocks the U.S. Department of Treasury from enforcing the act while the full merits of the case are decided. The federal government appealed the judge’s nationwide injunction, asking for it to be dissolved or stayed. The motion for stay was denied, and the appeal is now in front of the U.S. Court of Appeals for the Fifth Circuit. 

On Dec. 18th, CAI filed an amicus brief in support of the plaintiffs in Texas Top Cop Shop, Inc. v. Garland, et al., in their case challenging the CTA’s implementation and the importance of maintaining the current nationwide temporary preliminary injunction while this lawsuit continues to be adjudicated. 

This injunction is not a final ruling on the CTA’s constitutionality. This is a time of uncertainty, and community associations should stay informed, vigilant, and be prepared to comply if the injunction is lifted or further legal developments occur before the end of the year. 

In March, the District Court in the Northern District of Alabama determined the act was unconstitutional in National Small Business United v. Yellen. The decision only applies to the plaintiffs in the case. Arguments were heard in September in the federal government’s appeal of that decision. 

Meanwhile, courts in the District of Oregon (Firestone v. Yellen) and the Eastern District of Virginia (CAI’s case: Community Associations Institute v. Yellen) have come to different conclusions regarding the act, denying preliminary injunctions. CAI appealed the decision in Virginia, and plaintiffs in Oregon have done the same. 

“(The Texas decision) was good news, but it isn’t the end of the story,” says Thomas M. Skiba, CAE, CAI’s chief executive officer. “We firmly believe the act’s requirements place an excessive burden on community associations, which operate differently from traditional corporations and small businesses. This is a time of uncertainty and industry leaders should remain vigilant to any updates from the court system.” 

CAI believes community association board members who already complied with the act’s reporting requirements took a responsible route. Until the Texas decision, the deadline for reporting companies, including community associations, to submit information to the Financial Crimes Enforcement Network was Jan. 1. Any legal developments from the district court cases on appeal could further change requirements for community associations. 

“We recognize the situation is complex as we are so close to the reporting deadline,” says Skiba. “We continue to believe that exempting community associations from the act is in the best interests of CAI member communities.” 

CAI believes the act could have consequences for community association volunteerism. In a CAI webinar held before the Texas decision, College of Community Association Lawyers Fellows Edmund Allcock and Brendan Bunn shared in-depth background on the act and prepared associations to meet the reporting requirements. 

“It’s already hard to find individuals to staff volunteering positions. This, in our view, will make it even harder to find people to volunteer because they may not want to be subject to these reporting requirements,” said Bunn, a shareholder in the Fairfax, Va., office of Chadwick, Washington, Moriarty, Elmore & Bunn. 

Allcock shared that the act could have unintended consequences for community associations because it requires a continuing obligation. Information must be re-filed with FinCEN each time there is a change in community association board members. “Whenever there’s an election, a removal, a death, a resignation, theoretically, the community association is going to be required to amend its (information) within 30 days of that change of director,” explained Allcock, a founding member of Allcock Marcus in Braintree, Mass. 

Many of the concerns regarding the Corporate Transparency Act were reflected in a survey conducted by the Foundation for Community Association Research of more than 900 community association leaders in the fall: 

• 56% of respondents report being “very uncomfortable” with the act’s reporting requirements. 

• 58% report being “very uncomfortable” with the government’s use of the information being reported. 

• 79% are concerned about the potential legal consequences for the association or board members personally. 

• 78% are concerned about providing personal data into a federal database. 

• 27% reported that they would stop serving as a member of the board of directors in whole due to the act. 

• 81% believed that the filing requirements will affect homeowner volunteer participation on the community association’s board of directors or their ability to recruit homeowners to board positions. 

CAI expects legal briefings in its own lawsuit against the Corporate Transparency Act in the United States District Court for the Eastern District of Virginia to continue in January. CAI’s lobbying and advocacy efforts seeking both a one-year delay of implementation of the act’s reporting requirements and an exemption for community associations on Capitol Hill are ongoing.

>Look for any legal developments and updates on CAI’s lobbying and advocacy efforts at www.caionline.org/CTA.

>See the Foundation’s full survey results regarding the act at foundation.caionline.org/research/snap-surveys. 

Editor’s Note: This blog was updated on Dec. 19 to reflect new developments. CAI is closely monitoring the ongoing situation and will continue to provide updates as they are made available.