Corporate Transparency Act

(00:00) Speaker: It's time for AMG's 2024 Community Leaders Series Podcast Edition. Over the last three decades, AMG has worked to make the role of community leaders more effective and less of a headache. Seminar topics are a response to which our Executive Board members have requested. And now here's your host and CEO of AMG, Paul K. Mengert.

(00:23) Paul K. Mengert:  Welcome everyone. This is AMG's 2024 Community Leaders Series podcast edition. In today's episode, we will be discussing the crucial topic of for HOA boards of the Corporate Transparency Act, often referred to as CTA. We are really honored today to have Danielle Wang, an attorney with Sands Anderson, Law Firm in Richmond, as our special guest, to provide insight on this crucial subject. Danielle, welcome.

(00:57) Danielle Wang:  Thank you so much for having me, Paul.

(00:59) Paul K. Mengert:  I know you're located in in Richmond, although your practice extends well beyond that. You particularly work in the Sands Anderson Community Association team. And where we met was you were giving a presentation to lawyers from all across the country at the Community Association Law conference about the Corporate Transparency Act. So, I think, safe to say, you are probably one of the leading experts on this topic, not only in the eastern US, but really across the United States. For our guest knowledge, Danielle is, uh, one of the, uh, recognized as one of the best lawyers in America on the ones to watch real estate law list for 2024. So, it's quite an honor to have you with us. We really appreciate you taking some time out of your busy day to help our directors and hopefully other directors across the country know how to deal with the Corporate Transparency Act.

(01:59) Danielle Wang:  I think it's such an important topic for directors to know how to navigate, and I'd be happy to spread the information, to educate the directors, and also to clear up some misinformation that's out there.

(02:13) Paul K. Mengert: Well, there's certainly a lot of that. Let's jump right in. If you can, in just a minute or two, and I know that's a tall order, but just in a minute or two, explain to everyone what the Corporate Transparency Act aims to do and who's covered by it and who's exempt from it.

(02:31) Danielle Wang:  Sure, it is a tall order, but the intention of the Corporate Transparency Act is really simple at heart. The whole point of the Corporate Transparency Act is to enhance transparency in corporate structures and to combat illicit activities.  And those activities might be criminals using anonymous shell companies to hide their identities to launder money. It helps regulatory agencies combat terrorism and also drug trafficking. It also is intended to help the United States better align with what other countries are doing all across the world. And in fact, if you have some individuals who are, you know, lived abroad, they might say, what's the big deal? This is exactly what we do already in Brazil, Argentina, France, Spain, etc., etc. So that's kind of the intention there, which is to have more transparency in these LLCs, these corporations, so that the federal government can better do its job in ensuring homeland security. The companies that are affected by the Corporate Transparency Act is any corporate structure that needs to be registered with the State Corporation Commission of your particular state in order to be incorporated. And that usually happens by filing some paperwork with the State Corporation Commission that basically that act says that you are probably going to be affected by the Corporate Transparency Act, unless you fed into one of 23 exceptions. All right. And those 23 exceptions, it sounds like a lot, but it can basically be broken down into a couple of buckets, as I like to think of them. Many of these companies are already subject to regulatory scrutiny, such as publicly traded companies or banking companies, investment companies, or insurance companies. So, I think of that as the money companies, right. So that is one bucket of exemptions. The next bucket of exemptions are really, really large companies. And that's because they are already subject to scrutiny from the employment regulatory agencies as well as the IRS. In order to be a large company, you need to have gross receipts or sales exceeding 5 million and your last year and have more than 20 million, uh, sorry, 20 full time employees in the US. Other entities are going to be government entities, those are exempt. Inactive entities, those are also exempt and certain types of non-profit entities. And when I say certain, I mean very, very specific types. In fact, they must be recognized as a 501 C company by the IRS. So, if you are incorporated by a filing with the SEC and you don't fall into any of these exemptions, then yes, you're going to be subject to the Corporate Transparency Act. You're going to be considered what's called a reporting company, and you're going to be expected to report beneficial ownership information. And that's going to be information about people who have substantial control in that company. And that information needs to be reported to an agency called FinCEN, which stands for the Financial Crimes Enforcement Network. And that information is going to be kept there, reviewed there. It is kept private. It's not going to be something that the public can see, but it also does need to be updated from time to time.

(06:28) Paul K. Mengert:  Wow, that's a lot. And I think you certainly did a great job of summing it up. Let me see if I can go even one step further, which would be basically all of the associations we manage will be required to report. None of them have more than $5 million in income, and none of them have 20 employees. So, unless a community association, it seems to me, meets both of those requirements, they are going to be required to participate, regardless of how ridiculous that may seem.

(07:01) Danielle Wang:  There are some associations out there, and this is very case by case. Who could have the good companies’ exemption, the non-profit 501 C exemption. But they're really going to be far and far and few between. And they need to be designated by the IRS. So, they haven't been designated this year. They're probably not going to get that designation until next year. But back in the 70s, the IRS did sometimes grant that status to associations.

(07:36) Paul K. Mengert:  That's correct. I'm glad you mentioned that, because there are a few that I've run across in my career. I haven't been doing this since the 70s, but for a long time. But some of the older associations were actually set up as 501 C3’s. But I think, um, largely speaking, if they were set up in the 90’s or later, that's pretty unlikely. But it is, of course, something that you could check for. But I just want to be, I don't want to mislead the community leaders in the communities that our firm works with. I just think that none of those are going to qualify, although there could be certain cases where some associations would meet one of those requirements. But boy, I'm going to recommend they talk to their lawyer and make sure they've got that right before they decide they're not obligated to participate.

(08:22) Danielle Wang:  Absolutely. They are truly few and far between. And the IRS, by and large, no longer hands out those designations to community associations. So, you're absolutely right. If you were formed in the 90’s, chances are you would have a very slim chance of getting a 501 C4 or C7 designation from the IRS.

(08:46) Paul K. Mengert:  Thank you very much for this information. Everyone sit tight. We're going to go to a quick newsbreak from the AMG Community Leaders Series, and we'll be right back after this interesting newsbreak.

(09:01) Speaker:  And now it's time for your HOA Solutions Today newsbreak.

(09:05) Newsbreak:  Starting in July, State Farm will begin a phased non-renewal of 72,000 California policies, impacting community associations, homeowners, commercial apartments, and businesses. This move follows similar actions by Farmers, Kemper, and other insurers. State Farm will offer alternative coverage options to those affected, citing outdated insurance regulations, inflation, natural disasters, and reinsurance rates as the reasons for this decision. The withdrawal of commercial apartment policies will commence on August 20. State Farm will continue to assess the need for further business actions based on evolving market conditions. These policies account for just over 2% of State Farm General’s policy count in California.  For more information, please visit HOACommunityleaders.com.

(09:50) Paul K. Mengert:  We're back. I'm Paul K. Mengert, and I'm here with Danielle Wang discussing Corporate Transparency Act and the challenges that our community associations are going to face with the CTA, as it's often become known. When we met at the Community Association Law Conference several months ago, and you were the lawyer largely responsible for educating other lawyers from across the country about the Corporate Transparency Act. We all felt as though there was some hope that this might be either overturned by the courts, or congressional action might extend the deadline so that people wouldn't have to complete the paperwork that's going to be necessary this year. But where do you see that stand at this point?

(10:40) Danielle Wang:  Right. I see that in regard to community associations, there's actually a little bit more clarity as to the fact that FinCEN, the agency that is in charge of implementing and enforcing the Corporate Transparency Act, does expect community associations, or most of them, rather to comply with the Corporate Transparency Act. Back in February, when I gave my presentation, we made our analysis using our tax experts, our corporate experts, and of course our community associations experts to interpret, and analyze the statute that the Corporate Transparency Act comes from. But at that point, FinCEN had not expressly stated this will apply to community associations. Well, that change starting in April of this year, where FinCEN published a beneficial ownership FAQ. And in it they specifically talked a little bit about homeowners’ associations. And that statement about homeowners’ associations continues to be updated as recently as June. So that's one thing that has changed a bit from February. The other item is, is that there was a ruling in, was it Georgia or was it Alabama? It was definitely in the Deep South. Yeah. Alabama. Alabama, you're right. And in that holding that district court, it was a federal district judge held that the Corporate Transparency Act was unconstitutional. But, FinCEN did go ahead and state that they were going to respect that judgment only in regards to the people who had brought the suit. And that association, which is a small business association, doesn't include community associations. All right. And in addition, the federal government stated that they were going to appeal. They have gone ahead and put in the appeal. And as of right now, the appellate court, the next highest court, has not yet heard any argument on that case. So, we don't have any broader decision. And certainly because of where that case came from, it doesn't apply to the broader United States. Only if the Supreme Court makes a decision will it be considered binding on all of the jurisdictions within the United States? So, we're a long way away from that.

(13:24) Paul K. Mengert:  Great. Well, hold that thought just a minute, because I have a couple more questions for you, but I want to go to another AMG Community Leaders Series newsbreak.

(13:33) Speaker:  And here’s another HOA Solutions Today newsbreak.

(13:38) Newsbreak:  According to finance experts at Wealth of Geeks, Arizona cities have been ranked among the Top 10 most profitable locations for short-term rental owners. These cities offer opportunities related to golfing, events, and colleges. Notably, seven of these cities are in the Valley of the Sun. Since a 2016 law that prevents local governments from regulating short-term rentals which passed, both the number of rentals and related issues have surged in the Valley. Complaints about disruptive "party houses" that residents say lower their quality of life have increased. Formerly quiet communities have experienced significant disturbances, according to residents and officials, with some house parties at short-term rentals even resulting in gunfire. Property owners must adhere to various state and city regulations, including notifying their HOAs, neighboring properties, and neighborhood associations about operating rentals.  Let us know your thoughts by leaving a comment at HOACommunityleaders.com.

(14:34) Paul K. Mengert:  Welcome back folks. I'm Paul K. Mengert here discussing the Corporate Transparency Act with attorney Danielle Wang. We really appreciate you helping our community leaders and other community leaders from across the country get a better understanding about the Corporate Transparency Act. You certainly have condensed what I think otherwise, may have taken hours of information into a few minutes. And you've done a great job of doing that. But talk to our community leaders about what they should be doing now. We understand there are some court challenges, there may be some more. There's an effort to get Congress to delay. But, you know, from what I'm hearing, those things may not be successful. So, what should we be doing? What should community leaders be doing at this point, knowing that the deadline is perhaps coming in a few months.

(15:28) Danielle Wang:  Yeah, that's a really good question. And I actually have a few dos and don'ts for this time of the year, right, which is right smack in the middle of the year. For most associations they'll still have approximately six months to do their beneficial ownership reporting, but that time flies by really fast. So, the first thing is go ahead and contact your attorney even if something changes later on, whether that be more court hearings, court holdings, new legislation, what you shouldn't do is make assumptions about the status of the Corporate Transparency Act and its applicability to your association without first speaking to an attorney. Some of the reasons for that is a lot of news articles use very, you know, interesting, let's say that titles to describe what exactly has happened, but that is not always the truth. And when that case did come out, a lot of people said the Corporate Transparency Act is dead. But that's exactly wrong, right? It's dead as to a couple of people in the United States for the time being. So, number one, speak to your attorney and continue that conversation as the year progresses. So, you know exactly how the Corporate Transparency Act continues to apply. The second thing that you're going to want to do is you're going to want to talk to your attorney about determining if your association is a reporting company. Some associations aren't incorporated. They never made a filing with the State Corporation Commission, and those associations won't have to report, actually. And in addition to that, as we had talked about, perhaps your association does have one of these very rare 501 C4 or C7 designations. So, speak to the attorney. That attorney could also help you determine if you are part of some other exemption, such as the very large association exemption, and to navigate through how to go about counting seasonal employees to meet that 20-employee requirement. So that's the second thing that you want to do is to make a determination now even if you want to wait to see if you need to report, you should have an idea of whether or not, if the CTA continues to stand, you will need to do so. The third one is you need to figure out when your community would make the report. If the CTA is still going to be applicable later on in the year. So, as I had said, most community associations need to make a report by the end of this year. And I had said previously, you need to continue to update that information if there is a change in the beneficial ownership of the association. And as we know, communities have elections. So, I highly recommend you look at your calendars, you figure out when your annual election is going to be, and you make a determination as to when, after that annual election has passed. You need to be prepared to make your first beneficial ownership report. All right, so you want to keep an eye on it. I am personally advising my clients that we're going to start doing this type of work in September. It's late enough in the year where we can be sure, reasonably sure, as to whether or not the CTA will apply. But it's early enough that if things were to change, if things were to become very complex for whatever reason, turns out there's a lot of beneficial owners. I have enough time to do that legal analysis and to appropriately advise my client. Okay.

(19:29) Paul K. Mengert:  And just to explain to our listeners, beneficial ownership in this context doesn't necessarily mean you're the owner as much as it means you're one of the controlling parties. I think would be better wording than beneficial owner when it comes to associations. Can you elaborate just a quick minute on who the beneficial owners likely are when it comes to community associations?

(19:56) Danielle Wang:  Certainly, it's very confusing when it comes to community associations because the Corporate Transparency Act defines beneficial owners so broadly. It says anybody who has a substantial control in the reporting company, and it could be someone who has an ownership interest, such as a member, or it could be somebody who doesn't have any ownership interest within the subdivision or community at all but has a lot of power due to contractual rights or other type of relationship. But as a general rule of thumb, I am generally recommending that the board of directors, senior officers, if those officers are not the same as the board of the directors, and any individual who happens to own more than 25% of the membership interest, which usually would include developers, right? A lot of times they hold on to their lots, or their homes or their condominium units until they can be sold. So, a developer may also own more than 25%. So those are going to be the three clear categories. Unfortunately, FinCEN has not come out with any guidance in regards to those others, those people who may have a great deal of leadership in the community association through contract rights, such as community managers. So that remains a very gray area in the application of the Corporate Transparency Act.

(21:31) Paul K. Mengert:  Now, let me just kind of come to the end of all this. Let's assume that the entity or community association does need to report, and let's just assume that I'm one of those people that has to report for the moment, assume I'm on the board, so I have to report. What does that look like? What information do I have to give them?

(21:54) Danielle Wang:  Certainly. So, you're going to give your full name, your full address. You're going to give your date of birth and information regarding government issued identification. And there's actually a triage of what they prefer that ID to be. Passport is the most preferable to FinCEN, followed by a driver’s license. And you need to also upload a copy of that government issued ID. The other way you can go about giving that information in the company's report is you log on yourself and you go ahead and submit that information. And FinCEN gives you what's called an identifier number. That number can then be put into your company's form, your association's form. Instead of you giving all of this information to your association, which some associations some individuals may not feel comfortable giving out.

(22:53) Paul K. Mengert:  Well, this is great information. I think that we're, uh, we've really done a, you've really done a great job of explaining this in just a few minutes.  We're going to go to our final newsbreak, and then we'll come back for some final thoughts. So please stay tuned while we go to the Community Leaders Series final newsbreak of the day.

(23:13) Speaker:  And now our final HOA Solutions Today newsbreak.

(23:18) Newsbreak:  A new proposal by the Federal Communications Commission aims to prohibit apartment complexes and possibly HOAs from bundling internet service into fees or rent, thereby supporting consumers' right to choose their own providers. Current bundling contracts tend to favor cable TV providers, and when an HOA breaks such a contract, the provider can sue.  These partnerships often include not just internet but also TV and phone services. According to iProperty Management, there are 355,000 HOAs in the United States, representing about 40 million housing units. If even a quarter of these HOAs partner with a cable TV company, that equates to 10 million cable TV internet customers. Considering there are only about 50 million cable TV subscribers left, the impact of these 15 million HOA and apartment complex customers is significant for the struggling cable TV business model.  To read the full story visit HOACommunityleaders.com.

(24:13) Paul K. Mengert:  We're back, everyone. I'm Paul K. Mengert, and we're back with Danielle Wang with some closing thoughts on the Corporate Transparency Act, commonly known as CTA. Uh, Danielle, if you wanted to give them, uh, three takeaways with this, what would the three what would your three takeaways be?

(24:30) Danielle Wang:  My three takeaways would be most associations are going to be reporting companies under the Corporate Transparency Act. And FinCEN is now aware of community associations falling in. And they have not put down their foot and said no, no, no, we didn't intend to include community associations. So, that's number one. This does probably apply to most associations. Number two, there's a lot in the air right now. So, monitoring the news is going to be very important or being with someone or talking to someone who is, by trade, going to be plugged into the news, such as an attorney or a community manager. And finally, it's better to prepare now to comply with the Corporate Transparency Act than to hide your head in the sand until it's just too late in the year and you have to scramble.

(25:29) Paul K. Mengert:  Well, I appreciate that summary. As many of our listeners know, I try to give my three takeaways at the conclusion of each episode also, and, uh, mine really mirror yours. Uh, number one, you're at least if you're one of, uh, Association Management Group’s clients, you're almost certainly going to have to comply with this, although I do recognize there could be some exceptions. Number two, it's probably going into effect at the end of this year if your association was incorporated prior to this year, this is something that has to be done this year. And of course, for some of our developer clients, if you were incorporated in 2024, there is only a 30-day window to do this. And finally, uh, my third thought is at the end of the day, I'm not really sure this is such a big deal, giving the government back a copy of your passport. If I'm not mistaken, they probably already have that information. So, this, uh, while it's something different and new and we all feel, uh, a little bit violated when people want us to fill out new and different reports. But I'm not sure this really is giving the government any earth breaking, information that they wouldn't have anyhow. So, at the end of the day, maybe not worth making such a huge fuss over. Let's just maybe get it done, unless something changes. Danielle as the lawyer, if I said something that wasn't right in there, of course I'm not a lawyer, I don't give people legal advice. I do try to give them management advice and point them to the right direction and resources. So, if I said something incorrect, please take this opportunity to correct me.

(27:03) Danielle Wang:  The only thing I would note is that FinCEN did very graciously give us in 2024 for new associations that are created and incorporated, 90 days to make the initial report. But that 90-day period goes way down back to 30, as you had stated in 2025.

(27:24) Paul K. Mengert:  Oh well, thanks for pointing that out.

(27:28) Danielle Wang:  Yeah, there's a little bit more grace period. But even I myself have made my first 90-day report because I do represent a lot of developers. And it's really not as painful as you would think that it would be. You're really in and out of the website within a few minutes, just as you stated. And, um, I'm pretty sure the government already knows where I live. Yeah.

(27:52) Paul K. Mengert:  Yeah, it is going to be, uh, it is going to be some additional effort. And I've seen, uh, I've seen prices, um, as high as $1,000 for, uh, groups that are out there proposing to be your facilitator of this, uh, information. So, I don't know exactly how all that's going to work out yet. I think a lot of people in our industries, our industries, are trying to figure out how to do this, because of course, it's one thing to report who the board is today. But, you know, the boards change often, at least every year and sometimes even during the year there is a change. So, this is something everyone's going to, uh, have to stay on top of. Thank you, everyone, for tuning in to this important episode about the community association industry and particularly the Corporate Transparency Act. A special thanks to Danielle Wang, attorney at Sands Anderson, PC in Richmond, Virginia, for speaking with us on this new law known as the Corporate Transparency Act, that it sounds like we are all going to have to get used to. I'm Paul K. Mengert, your host for the 2024 AMG Community Leaders Series Podcast Edition. If you would like to explore more of our podcast episodes or access additional 2024 Community Leader series content, please visit HOACommunityleaders.com.  Again, special thanks to Danielle Wang. Appreciate you being with us.

(29:19) Danielle Wang:  Thank you for having me.

(29:21) Speaker: Thanks for listening to AMG's 2024 Community Leaders Series Podcast Edition. To find out more information on this episode, please visit HOACommunityleaders.com. This podcast is a production of BG Ad Group. All rights reserved.

• Most associations are going to be reporting companies under the Corporate Transparency Act.

• There's a lot up in the air right now, so, monitoring the news or keeping in contact with someone ‘in the know’ is going to be very important.

• It's better to prepare now to comply with the Corporate Transparency Act than to wait until it's just too late in the year and you have to scramble.

State Farm to Exit Homeowner Renewal Policies in California

Starting in July, State Farm will begin a phased non-renewal of 72,000 California policies, impacting community associations, homeowners, commercial apartments, and businesses. This move follows similar actions by Farmers, Kemper, and other insurers. State Farm will offer alternative coverage options to those affected, citing outdated insurance regulations, inflation, natural disasters, and reinsurance rates as the reasons for this decision. The withdrawal of commercial apartment policies will commence on August 20. State Farm will continue to assess the need for further business actions based on evolving market conditions. These policies account for just over 2% of State Farm General’s policy count in California.

The FCC Wants to Ban Apartments from Forcing People to Pay for Cable TV Internet

A new proposal by the Federal Communications Commission aims to prohibit apartment complexes and possibly HOAs from bundling internet service into fees or rent, thereby supporting consumers' right to choose their own providers. Current bundling contracts tend to favor cable TV providers, and when an HOA breaks such a contract, the provider can sue.

These partnerships often include not just internet but also TV and phone services. According to iProperty Management, there are 355,000 HOAs in the United States, representing about 40 million housing units. If even a quarter of these HOAs partner with a cable TV company, that equates to 10 million cable TV internet customers. Considering there are only about 50 million cable TV subscribers left, the impact of these 15 million HOA and apartment complex customers is significant for the struggling cable TV business model.

These Cities Are Most Profitable for Airbnb Hosts. Why Are So Many Arizona Cities on the List?

According to finance experts at Wealth of Geeks, Arizona cities have been ranked among the Top 10 most profitable locations for short-term rental owners. These cities offer opportunities related to golfing, events, and colleges. Notably, seven of these cities are in the Valley of the Sun. Since a 2016 law that prevents local governments from regulating short-term rentals was passed, both the number of rentals and related issues have surged in the Valley. Complaints about disruptive "party houses" that residents say lower their quality of life have increased. Formerly quiet communities have experienced significant disturbances, according to residents and officials, with some house parties at short-term rentals even resulting in gunfire. Property owners must adhere to various state and city regulations, including notifying their HOAs, neighboring properties, and neighborhood associations about operating rentals.