The Corporate Transparency Act (CTA) was introduced to combat money laundering and other illicit activities by requiring certain companies to report information about their Beneficial Owners and Company Applicants to the Financial Crimes Enforcement Network (FinCEN). The new reporting requirements took effect on January 1, 2024, and have wide-ranging implications for real estate professionals and their investors. Failure to file timely and accurate Beneficial Ownership Information (BOI) Reports (or BOIRs) can result in substantial penalties, and real estate professionals should begin preparing now to comply with the CTA.
When purchasing or developing a property, real estate professionals may form several companies, including limited liability companies or partnerships, to facilitate these transactions. Real estate professionals should be aware that each of these companies may be required to file a BOI Report to identify the Beneficial Owners and Company Applicants (if formed after January 1, 2024). Real estate professionals should take steps to educate their investors and Company Applicants about FinCEN’s new reporting requirements and consult a trusted advisor to ensure compliance with these new reporting requirements. Failure to file a BOI Report can result in civil and criminal penalties of up to $591 per day, up to $10,000 per entity. Criminal penalties can even lead to two years of imprisonment. FinCEN may hold Reporting Companies, Beneficial Owners, senior officers, and their Company Applicants liable for these penalties.
Real estate companies must identify the Beneficial Owners who own 25% or more (directly or indirectly) or exercise substantial control over each Reporting Company. Beneficial Owners may include investors who own 25% or more of an entity used to facilitate the purchase of a property or holding companies that own multiple properties. Individuals who direct the investment decisions of real estate companies may exercise substantial control over these Reporting Companies, and their information must be reported to FinCEN on the Reporting Companies’ BOI Reports, in addition to individuals owning 25% or more of such Reporting Companies. Please note that there is no penalty for over-disclosing information on a BOI report. If there is uncertainty about whether an individual is a Beneficial Owner, the best practice is to report the individual’s information on the Reporting Company’s BOI report.
Companies that are required to report Beneficial Ownership information (BOI) to FinCEN are referred to as Reporting Companies. Reporting Companies must report such information by filing a BOI Report electronically with FinCEN. A BOI report must include specific information about a company’s Beneficial Owners, including full legal name, residential address, date of birth, a unique identifying number from an acceptable identifying document (such as a driver’s license or passport), and a photo of the identification document. Companies formed on or after January 1, 2024, may also have to report information about their Company Applicants (discussed later). The deadlines for Reporting Companies to file their initial BOI reports are listed below:
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Beneficial owners are defined as individuals who own, directly or indirectly, 25% or more of the ownership interests of a Reporting Company or exercise substantial control over the company. An individual may be a Beneficial Owner through substantial control, ownership interests, or both. Companies can have multiple Beneficial Owners, such as multiple individuals who own or control 25% of the company and senior officers or important decision-makers of the company. There is no limit to the number of Beneficial Owners a company may have.
A Company Applicant is an individual who directly filed the document that created a Reporting Company or the individual who is responsible for directing such a filing. Common examples of Company Applicants include attorneys, registered agents, or company formation professionals. These individuals typically file a formation document or registration with a secretary of state or similar office to create a company. Reporting companies must disclose the same information about Company Applicants that they do about Beneficial Owners, except a business street address must be provided instead of a residential address.
Reporting companies also have an ongoing requirement to report changes in information after they’ve filed their initial BOI report. For example, if a Reporting Company’s address changes or it registers a new Doing Business As (DBA) name, it has 30 days from the date of such change to file an updated report. The same applies if a Beneficial Owner’s information changes, including their name, address, or unique identifying number. Please note that the renewal of an ID document does not trigger a filing requirement unless the Beneficial Owner is issued a new identification number on their driver’s license or passport. Reporting Companies must communicate with their Beneficial Owners to ensure that any changes are reported in a timely manner.
FileForms has developed a proprietary filing solution streamlining BOI Reporting for real estate professionals and investors. Our technology-enabled platform, coupled with professionals with decades of compliance experience, transforms BOI Reporting from a time-consuming burden into a seamless process. FileForms can assist real estate companies, investors, and advisors tackle these new Reporting requirements quickly and easily. Whether your company wants to educate itself and handle its BOI Reporting requirements internally or work with a trusted professional to file its BOI Report on its behalf, FileForms has multiple solutions available.
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