A new law called the Corporate Transparency Act (CTA) has taken effect, impacting many real estate investors who hold property through entities like LLCs. While largely silent in the media, the CTA imposes reporting requirements that could result in hefty fines or even jail time for non-compliance. This article explains the CTA’s key points and outlines the information real estate investors must report.
What is the Corporate Transparency Act?
Passed in 2021, the CTA aims to combat financial crimes like money laundering and terrorist financing. It targets entities often used to anonymously purchase real estate, making it harder for criminals to operate in the shadows. The law took effect on January 1, 2024.
What Does the CTA Require?
Real estate investors using entities to own property must report three types of information to the FinCEN (Financial Crimes Enforcement Network):
1. Reporting Company Information:
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- Reporting company name and any trade names
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- Business address
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- Formation jurisdiction
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- Unique business number (EIN)
Exemptions:
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- Tax-exempt entities (certain nonprofits, political organizations, and trusts)
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- Inactive entities (meeting specific criteria)
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- Large operating companies (employing 21+ people, $5+ million in sales, US office)
2. Beneficial Ownership Information:
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- Beneficial owner’s name
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- Birthdate
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- Residential/business address
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- Unique identifying number (passport/driver’s license with image)
Who is a Beneficial Owner?
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- Anyone owning 25% or more of the entity
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- Anyone exercising substantial control (managers, directors, officers, lenders with granted powers)
3. Company Applicant Information (for entities formed after Jan 1, 2024):
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- Company applicant’s name
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- Birthdate
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- Address
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- Driver’s license/passport (number and image)
When to File:
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- Entities formed before Jan 1, 2024: 1 year to file (until Dec 31, 2024)
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- Entities formed between Jan 1, 2024, and Dec 31, 2024: 90 days to file
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- Entities formed after Jan 1, 2025: 30 days to file
Changes and Errors: 30 days to file updated/corrected reports.
Penalties for Non-Compliance: Up to $10,000 in fines and/or two years in jail.
The Biggest Concern: Many registered agent services and even some attorneys are unaware of or advising clients to ignore the CTA, putting them at risk of serious penalties.
While the CTA may seem like an unwelcome burden, it’s crucial for real estate investors to comply to avoid legal trouble. Understanding the reporting requirements and seeking help from qualified professionals specializing in the CTA can ensure smooth compliance and protect your investments.
