Opinion: The Corporate Transparency Act and the burdens it entails for real estate organizations
In early 2021, the U.S. Congress passed the Corporate Transparency Act (CTA) to help federal agencies combat money laundering and other financial crimes. The law came into effect on January 1, 2024. Approximately 33 million small businesses, including real estate organizations, are required to report beneficial ownership information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Whether you know it or not, you might be one of them.
Who must file
Two categories of companies must report BOI to FinCEN:
- Domestic Reporting Companies – A corporation, limited liability company, or other entity created by filing a document with a Secretary of State or similar office.
- Foreign Reporting Companies – A corporation, LLC, or other entity organized under the law of another country and registered to do business in the U.S.
Businesses that are not required to report to FinCEN include businesses that are not formed by filing with a Secretary of State, such as sole proprietorships or certain trusts. Additionally, FinCEN has classified 23 types of companies as exempt, including tax-exempt entities, public utilities, certain large corporations, etc. Still, subsidiaries of those companies may be required to file in these types of cases.
Information required
Suppose you work at one of the millions of companies that have to file tax returns. In that case, you should include three main categories of information:
Reporting Company/Entity Information: Full legal name, any trade or DBA names, U.S. address, state of incorporation, and IRS taxpayer or employer identification number.
Information about the beneficial owner:
- The full legal name, date of birth, residential address and a unique identification number on a current form of identification (passport, driver’s license, etc.) for all/all beneficial owners or
- Those individuals’ FinCEN identification code (a personal ID number), if they have one.
A beneficial owner exercises “substantial control” over the company or owns/controls at least 25 percent of its ownership interests. These people may include senior officials, someone with the power to appoint or remove senior officials or a majority of directors, a key corporate decision maker, and/or someone with some other form of substantial control identified by FinCEN’s Compliance Guide for Small Entities.
Company Applicant Information: For entities formed after January 1, 2024, a report must include information or a FinCEN identifier regarding the person(s) who filed the paperwork to form the company (the direct filer) or who led the filing or audited (a lawyer, paralegal or an external service company).
Deadlines and fines
The first reports of all reporting companies incorporated before the end of 2023 must be filed by January 1, 2025. Companies incorporated in 2024 have 90 days to file their initial reports, and companies incorporated in 2025 or later have 30 days to file their initial reports.
If the above information changes, the reporting company must submit an updated report within 30 days. This also applies to newly exempt companies; they must submit an updated report stating this. Also suppose that a reporting company discovers that the information it submitted is incorrect. In that case, it must submit a corrected report within 30 days.
Beneficial owners of an entity that fails to report by the deadline may face civil penalties of up to $591 per day per entity that the violation continues, and criminal penalties of up to $10,000 and/or two years in prison.
The burden of CTA compliance
Compliance with the CTA is essential, but that doesn’t mean it hasn’t already created a burden on entities and their leaders. It all starts with awareness. Many entities may not have the systems and/or appropriate advisors in place to flag their obligations under CTA for them. As a result, they may not hear about CTA or their responsibilities under the law until it is too late.
Second, it can take a lot of time and effort to submit good reports. Some entities with simpler ownership structures can complete the form in less than an hour or have someone do it for a minimal fee. Other entities may be much more complex, and senior officials and/or their outside advisors may be responsible for hundreds of files with different variables and dozens of permutations. Gathering and entering all the right information and managing/storing it properly would be a huge project that could take weeks or months to complete.
And if/when this information changes and updated/corrected reports need to be submitted, the process would have to start all over again. Ongoing compliance will be a much bigger issue for reporting companies than the initial filing process.
All told, the time and effort to comply with the CTA can add up quickly. In some organizations, it can easily require the full-time attention of an employee or an entire team for archiving, updates, corrections and data management. To minimize costs and human errors related to archiving, some organizations have decided to invest in tools that automate and standardize CTA processes.
It is essential that you determine whether or not your organization is required to file a BOI report under the CTA and then do so appropriately (if necessary) and in a timely manner. It is also important that you fully understand your obligations under the law and budget and that you find the resources to ensure continued compliance. The more efficiently you can do all this, the less you will be distracted from business-critical activities.
Steven Friedman is CEO of Platinum Filings.
This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.
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