Feds Halt Disclosure Requirements Impacting HOAs, Property LLCs

The federal government won’t force homeowners associations and many other kinds of businesses to disclose details about their true owners, something advocates claimed could have raised HOA fees.

The Treasury Department said this week it wouldn’t require most U.S. companies to report information on their beneficial owners to the Financial Crimes Enforcement Network. The law would’ve impacted homeowners associations and companies that own real estate—amid a broad swath of 32 million American business entities. Enacted as part of the Corporate Transparency Act, the government initially pushed the law to deter money laundering.

The CTA required those business entities to report names, addresses and other info on their beneficial owners to the government. That’s typically someone who owns more than 25% of a company or exercises “substantial control” over its operations.

But the CTA spawned dozens of lawsuits around the country, including from people who owned their own homes through LLCs. These individuals argued their entities don’t have a profit motive, and so money laundering concerns don’t apply.

HOA groups, meanwhile, worried they’d need to continually report info on shifting HOA board membership, which could cause confusion, increase compliance costs and lead to fewer people volunteering to serve on HOAs.

Secretary of the Treasury Scott Bessent called the step back from the rule “a victory for common sense and American small businesses.”

“Treasury is eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security,” Bessent said.

FinCEN says it will delete information involving U.S. citizens that has already been submitted over the course of the multi-year rollout of the controversial CTA. There will now also be exemptions for foreign pooled investment vehicles registered in the U.S. from reporting beneficial ownership information of U.S. owners.

But, many foreign entities would still be required to report information on their beneficial owners.

Real estate impacts

The government initially defended the Corporate Transparency Act when it was implemented in 2021, arguing almost $300 billion a year in fraud and money laundering takes place through anonymous shell companies that shield owner details. The Trump administration renewed the fight to keep reporting requirements on foreign ownership. It eyed foreign ownership of American real estate and other tax crimes.

The Community Associations Institute, a D.C. group that advocates for the 373,000 HOA and condo associations nationwide, praised the move. It had been worried about the impact on 2.5 million elected and appointed board members serving local associations, many of them volunteers.

“FinCEN’s final rule is a significant victory for community associations and the volunteer board members who serve them,” CAI said. “This permanent regulatory relief provides certainty for associations and allows volunteer board members to focus their time and resources on serving their communities.”

On the other hand, a number of advocacy groups worry the new enforcement stance will allow money laundering to continue unchecked.

Erica Hanichak, co-director of the FACT Coalition, which lobbies for financial regulations, said the change “keeps the floodgates open for criminals to launder money through U.S. shell and front companies.”

“By failing to fulfill Congress’ mandate for greater financial integrity, the Treasury Department has handed a major victory to U.S. adversaries, corrupt officials, fraudsters, and tax evaders who use our financial system to move and hide illicit wealth,” Hanichak said.