Understanding the Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) was passed in 2021 but goes into effect in 2024. It signifies a pivotal shift in the regulatory landscape, bringing about heightened transparency in corporate structures and operations within the United States. For commercial real estate investors, understanding the purpose and significance of the CTA is paramount, as it may directly impact business operations.

Purpose of the CTA:

Combating Illegal Activities

The CTA aims to identify those who are behind the veil of US businesses and real estate ownership in an effort to tackle money laundering, potential terrorist activity, and other illicit activities.

Strengthening Accountability & Integrity

The government hasn’t historically had a good way to track the individuals behind large corporations and company names. CTA bolsters corporate governance by promoting accountability and integrity within business structures by requiring that all businesses disclose all “beneficial owners.”. There are exceptions for some large companies, SE-registered advisors, pooled funds, etc., but most corporations, LLCs and other similar entities that are established solely for the ownership of real estate will be required to meet these new requirements. 

Enhanced Compliance 

Compliance with CTA requirements is essential for businesses, including entities that exist for the sole purpose of owing real estate, to avoid penalties. Understanding reporting deadlines and accurately submitting beneficial ownership information to FinCEN.gov is crucial.

The reporting deadlines of reporting companies vary depending on the business’s formation date, so it is important to familiarize yourself with the nuances set forth to avoid the potential penalties established by the U.S. Treasury.  LLC’s that are not in compliance with the CTA may face a fine of $500 per day per LLC or a 2-year prison sentence.

Key Dates for Investors to Remember

The commencement of BOI reporting by FinCEN begins on January 1, 2024, but reporting deadlines differ based on company registration dates:

• Foreign and domestic entities registered in the U.S. in existence PRIOR to January 1, 2024,  have until January 1, 2025, to file initial BOI reports.
• Foreign and domestic entities registered in the U.S. created AFTER December 31, 2023, must register within 90 days following their formation date. 
• Non-exempt foreign and domestic entities registered in the U.S. formed after December 31, 2024, are subject to a reporting deadline of 30 days after their date of organization.

The BOI reporting form can be found here.

Conclusion

The Corporate Transparency Act will change the way commercial real estate investors do business. Designed to identify bad actors in the space, the law impacts everyone who owns a company. Properly registering your ownership entities will be vital. Real estate professionals, including brokers, attorneys, and accountants, should become familiar with the implications of CTA and be able to provide additional information. Stay informed, meet reporting deadlines, and embrace the CTA's principles to navigate the evolving regulatory environment effectively.