Understanding the Corporate Transparency Act for Real Estate Investors
The Corporate Transparency Act (CTA) has introduced new compliance requirements, particularly in world of real estate investing. This article aims to break down the CTA for real estate investors, focusing on Beneficial Ownership Information (BOI) reporting. First, download the Beneficial Ownership Information Reporting Requirements: Small Entity Compliance Guide" (Version 1.1, December 2023) from the Financial Crimes Enforcement Network (FinCEN) it outlines the reporting requirements for beneficial ownership information (BOI).
FinCEN also has a detailed website that can help you avoid being scammed and where you will report and upload your information as well.
What Does the Corporate Transparency Act Mean for Real Estate Investors?
The CTA primarily targets enhancing transparency, that is, taking away privacy, in financial transactions to combat money laundering, tax evasion, and other illicit activities. For real estate investors, this translates into an additional layer of reporting and disclosure requirements. Which means loss of privacy. The act necessitates the disclosure of beneficial owners of entities involved in real estate transactions, which directly impacts investors who often operate through legal entities like LLCs or trusts.
When Do Real Estate Investors Need to Comply with BOI Reporting?
Reporting companies created before January 1, 2024, have until January 1, 2025, to file initial BOI reports.
Reporting companies formed between January 1, 2024, and January 1, 2025, have 90 calendar days from the notice of creation or registration to file.
Entities established on or after January 1, 2025, must file within 30 calendar days of creation or registration notice.
The guide provides detailed instructions on determining reporting status, identifying beneficial owners, and understanding exemptions.
What Information Must a Real Estate Investor Report?
Under the CTA, a real estate investor is required to report the following information for each beneficial owner:
Full Legal Name
Date of Birth
Current Residential or Business Street Address
A Unique Identifying Number from an acceptable document (such as a passport or driver's license number), and
Upload an Image of the Document providing the unique identifying number, such as your passport or driver's license number.
This information must be accurate and kept up-to-date to reflect any changes in ownership or control.
How Should Real Estate Investors Handle BOI Privacy Concerns?
Privacy loss is a significant concern with the disclosures required by the CTA. Real estate investors should know that there is no entity they can use that they will be able to escape the CTA unless it falls under one of the 23 exemptions.
Can Real Estate Investors be Exempt from BOI Reporting?
There are 23 exemptions under the CTA. These generally apply to entities that operate under substantial governmental authority, such as banks, credit unions, and registered securities issuers, are exempt. Also, entities owned or controlled by such exempt entities are not required to report.
Most private real estate investment entities are likely to fall under the purview of the CTA.
What are the Penalties for Noncompliance for Real Estate Investors?
The act has severe penalties for noncompliance or providing false information. This includes civil penalties of up to $500 for each day the violation continues up to $10,000, and criminal penalties including imprisonment for up to two years.
The Corporate Transparency Act brings forth significant changes for real estate investors, especially in terms of reporting, transparency and privacy. The ease of reporting does not outweigh the weight of the loss of privacy to over 30 million business owners.