Last week, CAI filed a lawsuit against the United States Department of Treasury challenging the application of the Corporate Transparency Act beneficial ownership interest filing requirements on community associations. This action is being taken to protect communities from the burdensome and unnecessary requirements of the Corporate Transparency Act.
The act imposes new reporting requirements on many entities, including community associations. Under the law, volunteer board members of condominiums, homeowners associations, and housing cooperatives will be required to provide sensitive personal information to the federal government’s Financial Crimes Enforcement Network. These requirements were designed to combat illegal activities including terrorism financing and money laundering. The federal government has taken a very broad approach with this law, impacting organizations like community associations that are extremely unlikely to be engaged in such activities. We believe the application of the Corporate Transparency Act to community associations is an overreach, unintentional, and potentially unconstitutional.
CAI has worked with the Treasury Department for over a year to pursue a regulatory exemption for community associations but has been unsuccessful. Since the law’s implementation date for existing associations is rapidly approaching on Jan. 1, we determined that a lawsuit was necessary to protect community association rights and ensure they are exempt from the act.
Along with the full complaint (lawsuit), CAI filed a motion for preliminary injunction. A preliminary injunction is temporary relief that maintains the status quo until the court decides the merits of the case. CAI’s first hearing on the motion has been scheduled for Oct. 11. CAI’s legal team will be making arguments urging a rapid response due to the pending compliance deadline; a ruling on the preliminary injunction may come in the days or weeks following that hearing.
The lawsuit challenges the application of the act to community associations and highlights several key issues:
- Exemption from the Corporate Transparency Act: Communities should be exempt from the act’s reporting requirements, as they are considered nonprofit organizations under section 528 of the IRS code.
- Improper Rulemaking Procedures: FinCEN issued FAQs without following proper notice-and-comment procedures required by the Administrative Procedure Act, making these rules invalid.
- Arbitrary and Capricious Action: FinCEN’s refusal to exempt community associations from the CTA is arbitrary and capricious, as it fails to consider the low risk of illicit financial activity by such entities.
- Constitutional Violations: The act violates communities’ constitutional rights under the Fourth, Fifth, and Ninth Amendments by requiring invasive personal disclosures without adequate privacy protections or sufficient cause.
- Overreach of Federal Powers: The act unlawfully usurps state authority to regulate corporate formation and governance, exceeding the federal government’s constitutional powers.
- Equal Protection Violation: The act discriminates against community associations by not exempting them as nonprofit organizations, unlike similar entities under section 501(c) of the IRS code.
In the lawsuit, we seek to:
- Obtain a declaration that the Corporate Transparency Act does not apply to community associations, including condominiums, homeowners associations, and housing cooperatives.
- Challenge FinCEN’s decision not to exempt community associations from the act.
- Request judicial review of the denial of exemptions, which we believe is both unlawful and unconstitutional.
CAI is committed to protecting our members from regulations that threaten privacy and discourage volunteerism within community associations. We are pursuing this lawsuit to ensure that communities can continue to operate without unnecessary and burdensome regulations.
What can you do to support the efforts?
- Maintain your CAI membership to stay informed about the case’s progress.
- Encourage other associations in your local area to join as CAI members.
- Bookmark www.caionline.org/CTA to keep up with developments.
- Donate to CAI’s legal fund to help cover litigation costs.
- Contact your Congressional representatives to express support for H.R. 9045 to exempt community associations from the Corporate Transparency Act.
The National Small Business Association filed a lawsuit over the act and was successful in getting its members exempted from the requirements. While CAI is seeking to exempt all community associations, we learned from the NSBA effort that “association standing” protects all members of the organization. If our lawsuit is successful, it is possible exemptions will only apply to community associations that are members of CAI. We encourage you to keep your membership in good standing.
>>As of now, community associations are still expected to comply with the act’s reporting requirements by Jan. 1. Find answers to frequently asked questions and for the latest updates on the lawsuit and preliminary injunction.
Our Condominium belongs to CAI, and It’s amazing how this Corporate Transparency Act can even occur with non-profit condominiums.
I worked for a bank 29 years – that I understand, but a condominium ??
This not only will cause huge amounts of paperwork for all involved, but our Property Management is going to charge us large amounts of money for them to deal with the headaches, time, frustration, and costs on their parts, which will be taken out on us innocent owners/residents.
What do they think we’re going to do when we the Board of Directors don’t even have contact with what they’re talking about – Money Laundering, and volunteering – that means no salary ……. What are they thinking ???
Thanks for trying – please keep up the good work to help us innocents !!