The Corporate Transparency Act and What HOA Boards Need to Know

Serving on a homeowners association board is already a significant commitment.

Volunteer board members give their time to help make decisions, oversee their communities, manage budgets, plan for the future, and represent their fellow homeowners. For many communities, finding qualified homeowners willing to take on those responsibilities can already be a challenge.

That is why the Corporate Transparency Act became such an important issue for the community association industry.

In Episode 100 of The Uncommon Area, Matthew Holbrook sits down with Phoebe Neseth, Vice President of Government Relations for Community Associations Institute, to discuss the Corporate Transparency Act, why it raised concerns for HOA and condominium association boards, and the important regulatory update discussed in the episode.

The conversation also provides a look behind the scenes at how advocacy efforts can shape the issues affecting community associations across the country.

What Is the Corporate Transparency Act?

The Corporate Transparency Act, often referred to as the CTA, was passed as part of the National Defense Authorization Act at the end of 2020.

The law established beneficial ownership reporting requirements for certain corporations and nonprofit organizations. These requirements involved providing personal information about individuals associated with covered organizations and maintaining updates as leadership changed.

Phoebe explains that the goal behind the legislation was connected to preventing financial crimes, including money laundering and other illegal financial activity.

The challenge for community associations came from the broad way organizations could be included under the law.

Many homeowners associations and condominium associations are organized as nonprofit corporations. As a result, questions emerged about whether volunteer community association board members would be subject to the Corporate Transparency Act's reporting requirements.

That created serious concerns for the industry.

Why Did the CTA Raise Concerns for HOA Boards?

CAI's concern was not with the broader goal of preventing financial crimes.

Instead, the concern centered on the application of the law to volunteer community association board members.

As Phoebe explains in the episode, there were several major issues.

Privacy Concerns for Volunteer Board Members

One concern involved the personal information that board members could be required to provide.

HOA board members are typically volunteers elected by their neighbors. They are not corporate executives who have chosen careers centered around managing large companies or navigating federal compliance requirements.

For some homeowners, being asked to provide personal information as part of a federal reporting process could make volunteering for a board position significantly less appealing.

Community associations depend on homeowners being willing to step up and serve. Adding another layer of personal reporting requirements could shrink the pool of potential volunteers.

An Administrative Burden for Communities

Another concern involved the practical challenge of keeping reporting information current.

Community association boards change.

New directors are elected. Existing directors leave their positions. Communities experience changes in leadership throughout the year.

Those changes could create ongoing reporting responsibilities that would need to be tracked and managed carefully.

For community managers and management companies, this could also create additional administrative responsibilities across many associations.

The issue was especially concerning because of the consequences associated with failing to meet reporting requirements accurately and on time.

Making Volunteer Recruitment Even More Difficult

Perhaps one of the most important concerns discussed in the episode is the challenge of recruiting volunteer board members in the first place.

Some community associations have highly engaged homeowners and strong boards.

Others struggle to find enough people willing to serve.

Adding federal compliance requirements and potential penalties to a volunteer position could create another reason for homeowners to decline involvement.

As Phoebe explains, community association board members are elected by their peers and generally serve because they want to contribute to their communities.

The industry was concerned that applying these requirements to volunteer board members could discourage exactly the type of homeowners communities need to step forward.

Why Are HOA Boards Different?

One of the important points raised during the conversation is that community association boards operate differently from many other types of corporate boards.

HOA and condominium association board members are generally volunteers elected by homeowners within their communities.

They operate within a structure that includes membership oversight and access to association information. Homeowners have an interest in how their association is governed and how community funds are managed.

For CAI and many community association leaders, that distinction mattered when considering whether volunteer association board members should be included within the Corporate Transparency Act's requirements.

The concern was that the law's broad definitions could sweep community associations into requirements that were not designed with volunteer homeowner boards in mind.

How CAI Responded

Phoebe describes CAI's response as a three-pronged approach.

1. Working With Congress

CAI worked with members of Congress to discuss the impact of the Corporate Transparency Act on community associations.

The goal was to explore whether there could be an exemption or other legislative solution that would prevent volunteer community association board members from being subject to the reporting requirements.

CAI also worked alongside broader industry conversations involving other organizations with concerns about the law's impact.

2. Working With the U.S. Treasury Department

CAI also worked with the U.S. Treasury Department.

One of the priorities was seeking additional time and addressing concerns surrounding implementation.

Education was an important consideration.

Many community association board members may not have been aware of the requirements or understood how they could apply to their associations. If significant reporting obligations were going to be imposed, the industry needed time to understand them and communicate those requirements to communities.

3. Federal Litigation

The third part of the approach involved legal action.

CAI assembled a task force of community association attorneys from across the country, and the organization's Board of Trustees approved efforts to challenge the application of the law to community associations through federal litigation.

The goal was to establish that community association boards should not be subject to these requirements.

This approach demonstrates the many different ways advocacy organizations can address issues affecting an industry.

Legislation, regulatory engagement, legal action, and member education can all play a role.

The Major Update Discussed in This Episode

The biggest takeaway from Episode 100 is the regulatory update discussed by Phoebe.

According to the conversation, the U.S. Treasury Department issued regulatory changes that paused Corporate Transparency Act filing requirements, followed by a final rule discussed in the episode regarding enforcement of beneficial ownership reporting requirements for U.S. corporations.

For community association leaders, this was significant.

The immediate concern about volunteer HOA and condominium association board members being required to comply with these beneficial ownership filing requirements was no longer active under the regulatory enforcement position discussed in the episode.

However, there is an important legal distinction.

As Phoebe explains, the Corporate Transparency Act itself remained in law.

The regulatory enforcement position could potentially change under a future administration.

That means the issue is not necessarily something the community association industry can simply stop monitoring.

What About Repealing the Corporate Transparency Act?

The episode also discusses legislation introduced in Congress that would repeal the Corporate Transparency Act entirely.

Phoebe references H.R. 425 in the House of Representatives and Senate Bill 100 as legislation intended to repeal the act.

CAI's support for repeal legislation comes from a practical position related to community associations.

At the time of the conversation, there was no separate legislative mechanism focused specifically on creating an exemption for community associations.

Repealing the act entirely represented the available legislative path that could remove the requirements affecting volunteer community association board members.

For CAI, the priority remains ensuring that HOA and condominium association volunteers are not subjected to unnecessary federal reporting requirements that could affect privacy, create administrative challenges, and discourage homeowners from serving.

Why Advocacy Matters to Community Associations

This episode is also a helpful reminder that community association management is connected to issues far beyond individual neighborhoods.

Federal and state legislation can have a direct impact on how communities operate.

A law designed to address one type of issue can create unintended consequences for another group.

That is why organizations like Community Associations Institute play an important role in monitoring legislation, educating policymakers, and communicating industry concerns.

For individual board members and community managers, it can be difficult to follow every bill, regulation, court case, and government agency action that could affect their communities.

Industry advocacy helps bring those issues forward.

It also creates opportunities for community association leaders to make their voices heard.

What Should HOA Board Members Do?

The biggest takeaway is to stay informed.

The regulatory status discussed in this episode provided positive news for community association boards. However, because the underlying act remained in law and regulatory positions can change, the issue is still worth monitoring.

Board members and community managers should continue following updates from trusted industry organizations and legal professionals.

They should also pay attention to legislative developments that could affect how associations are governed and what responsibilities volunteer board members may face.

The Corporate Transparency Act is a strong example of why staying informed matters.

An issue that initially seemed far removed from a neighborhood HOA had the potential to affect volunteer board members across the country.

Episode 100 of The Uncommon Area

In this episode, Matthew Holbrook and Phoebe Neseth break down a complicated federal issue in a way that connects directly to community associations.

They discuss what the Corporate Transparency Act is, why it raised concerns for HOA and condominium association boards, how CAI responded, and where the issue stood at the time of their conversation.

They also highlight something that is easy to overlook.

Community associations depend on volunteers.

Every additional requirement placed on those volunteers should be carefully considered in light of the role they play in their communities.

To hear the full conversation with Phoebe Neseth, listen to Episode 100 of The Uncommon Area.

The Uncommon Area is available on YouTube, Spotify, Apple Podcasts, and wherever you get your podcasts.

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