As you may have seen in the news or industry updates, the Corporate Transparency Act (CTA) takes effect January 1, 2024, and rules were recently released that require many companies to report their beneficial owners to FinCEN. ¹ For real estate companies, this means many joint ventures, syndications, and single-purpose entities (SPEs) created for real estate deals will need to report to the federal government on who owns or controls more than 25 percent of the ownership interests of those companies to the federal government. ² This obligation is not unlike what is currently required by lenders for certificates of beneficial ownership under existing Know Your Customer (KYC) policies and, over time, we anticipate this reporting obligation will become a matter of organizational routine. However, the CTA creates an immediate burden/obligation by requiring such filings for all companies already in existence (all of which must be filed by January 1, 2025), ³ and, for companies formed after January 1, 2024, within 90 days after the company is created or registered. For all companies formed in 2025, the time period to report will be 30 days after the new company is created or registered.

There are exemptions for “large companies” (over 20 employees and over $5 million in annual revenue), ⁴ and their subsidiaries that are 100 percent owned or controlled by the “large company.” However, many real estate SPEs will still need to file, even if they are a subsidiary of a “large company,” because frequently there is an investor, developer, or other owner of an SPE joint venture, that undermines the 100 percent ownership or control exemption requirement. Additionally, there is an exemption for an inactive entity that existed before January 1, 2020, which is not owned by a foreign person, has not had a change in ownership in the last 12 months, or has not sent or received greater than $1,000 in the last 12 months, and does not hold any assets. Once you file, a company may receive a unique FinCEN identifier, which can be used on future filings to expedite the process. FinCEN will publish instructions and guidance on how to file the report, which will be available at www.fincen.gov/boi.

The civil penalties for not filing include a possible fine of $500 per day for each day a violation is outstanding, up to a maximum of $10,000, and there are criminal liabilities for misreporting information. ⁵

We encourage you to work with your legal counsel to ensure compliance with these obligations, and feel free to contact us with any questions. For more specific details about the CTA, Ice Miller produced this detailed breakdown of the Act. More details about reporting and filing will be forthcoming.

^{[1] 31C.F.R.§1010.380(2022)
[2] 31C.F.R.§1010.380(d)
[3] 31C.F.R.§1010.380(a)(1)(iii)
[4] 31C.F.R. §§1010.380I(2)(i) to(xxiii)
[5] 31U.S.C.A.5336(h)(1)}

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.