Beneficial Ownership & the Corporate Transparency Act

The Treasury Department is expected to issue new rules in 2023 that will require real estate professionals to report the identities of the "beneficial owners" of companies buying real estate to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). A beneficial owner refers to an individual who owns at least 25% of an entity or indirectly exercises “substantial control” over it.

The Corporate Transparency Act (CTA) authorizes the Treasury's FinCEN to collect beneficial ownership information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls. Enacted in January 2021, the CTA’s reporting requirements go into effect on January 1, 2024.

The Corporate Transparency Act (CTA) amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies) to FinCEN.

Due to the far-reaching scope of the CTA, there is concern about the impact it could have on many commercial residential real estate businesses that are frequent users of the LLC structure for conducting business. 

Position

The Real Estate Roundtable will analyze the repercussions of the Treasury Department’s highly anticipated new beneficial ownership rules, expected this year, and their impact on commercial real estate.

The Roundtable is part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)

The Roundtable and three other national real estate organizations also submitted detailed comments to FinCEN in May 2021 addressing several implementation concerns related to the beneficial ownership registry, including significant reporting burdens. (Roundtable Weekly, May 7, 2021)

Background

FinCEN estimates that the Corporate Transparency Act (CTA) will affect over 32 million entities, imposing significant new compliance burdens on beneficial owners for the first time. Historically, few jurisdictions in the United States mandate the collection of beneficial ownership information of corporate entities.

Additional legislation being considered would impose anti-money laundering compliance obligations, similar to what banks face, on so-called “gatekeepers” such as law firms, investment advisers, accounting firms, and other professional service providers that are not currently subject to these onerous obligations.

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