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FINCEN’s position unclear on HOA beneficial ownership

NOTE: This article by Las Vegas attorney Greg P. Kerr was first published in the Community Associations Institute Nevada Chapter newsletter. We received permission to reprint it here. It is important to our homeowners associations. This is the second part of a three-part series.

We continue our discussion on the Anti-Money Laundering/Corporate Transparency Act and how it will affect our HOAs in Nevada.

What is somewhat ambiguous is whether or not community managers will be deemed individuals with “substantial control,” as that term is defined in 31 C.F.R §1010.380(d)(1)(i). When reviewing the definition, it can be argued that, essentially, community managers do not have the authority to exercise any of the decisions or actions that are set forth in the above regulation; community managers assist their clients in carrying out those decisions and tasks when decided on by their clients’ boards of directors but ultimately, board members make those decisions.

However, 31 C.F.R § 1010.380(d)(1)(i)(D) above serves as a broad, ill-defined catch-all when it includes persons that have “any other form of substantial control over the reporting company,” which may be interpreted under the United States Department of the Treasury’s Financial Crimes Enforcement Network, or FINCEN, regulations to include community managers.

Furthermore, FINCEN may consider community managers as having substantial control under the other provisions of that regulation as well. At this time, it is unclear what FINCEN’s position on this issue will be.

As to beneficial ownership through 25 percent or more ownership of the homeowners association, many homeowners associations do not have owners that own 25 percent or more of the allocated interests in a homeowners association.

However, — and not entirely clear under the act at this time — if there are owners who own 25 percent or more of an association’s allocated interests, those owners may need to report as beneficial owners, in addition to the directors on the board of directors. This beneficial ownership reporting requirement might be triggered in a condominium project where owners own a fractional share of the common elements as tenants in common.

Reporting requirements

The information that needs to be reported to FINCEN consists of information relating to the reporting company and each beneficial owner (e.g., board members) is the following:

Reporting company: The following information will need to be reported: (i) full legal name of the entity; (ii) the DBA, if any; (iii) principal place of business; (iv) jurisdiction of formation; (v) taxpayer identification number.

Beneficial owner: The following information will need to be reported: (i) full legal name; (ii) date of birth; (iii) complete current address; and (iii) unique identifying number, the issuing jurisdiction and an image of one of the following non-expired documents: U.S. passport, state driver’s license, identification document issued by a state, local government or tribe.

At a minimum, the following information will likely need to be reported: (1) business name; (2) legal name of board members, birth date, home address, an identifying number from a driver’s license, state ID, or passport; (3) individual with substantial control; and (4) changes, corrections, additions to the filing must occur within 30 days of changes in beneficial owners (e.g., changes in membership on the board of directors due to resignations, removals, new election, etc.).

The FINCEN rule became effective as of Jan. 1. For all reporting companies in existence as of that date, those reporting companies must file their reports (called “BOI reports”) no later than Jan. 1, 2025. For reporting companies that are created between Jan. 1, 2024, and Jan. 1, 2025, those reporting companies must file their reports within 90 days of the effective date of the creation of such reporting company. Any reporting companies that are created after Jan. 1, 2025, must file their BOI reports within 30 days of the effective date of the creation of such reporting company. BOI reports must be filed on the online FINCEN filing system, which is now operational.

Also, if there are changes to the information of beneficial owners, or if there is a change in beneficial owners, an updated BOI report must be filed within 30 days of the change. For homeowners associations, this arguably will require that any change in the directors or any change in the identifying information of a director will have to be reported to FINCEN within 30 days of that change. For year 2024, it may be best for associations to wait until the completion of their 2024 annual elections before filing their BOI reports.

Barbara Holland, CPM, is an author, educator and expert witness on real estate issues pertaining to management and brokerage. Questions may be sent to holland744o@gmail.com.

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